What to Expect with Home Prices in the Next Few Months

California’s median home price has shown some welcome stability in recent months, hovering around the $290,000 mark since March. But what is likely to happen over the rest of the year? Are there opportunities between now and December 31?

Seasonal Change in the Mix of Sales

The statewide median price is typically softer at the end of the year and in the early months of the year, falling 1.5 percent from the third to the fourth quarter and 1.1 percent from the fourth to the first quarters respectively. By contrast, the median price increased by an average of 6.2 percent and 1 percent in the second and the third quarters. The seasonal softening of home prices is due partly to the change in the mix of sales throughout the year. Homes in the lower price tier (below $500,000) typically make up a bigger portion of the total annual sales in the first and the fourth quarters of a year than they do in the second and the third quarters. At the same time, shares in the higher price tiers (above $500,000) are generally higher in the second and the third quarters than they are in the first and the fourth quarters.

The market appears to be following a similar trend for the first three quarters of the year. Whether the mix of sales will shift in favor of lower-price tier in the fourth quarter remains to be seen.

Downward Movement in the Sales-to-List Price Ratio

The sales-price-to-list price ratio (SL ratio) also shows a seasonal trend that may shed some light on the direction of home prices for the upcoming quarter. The ratio typically begins the year at a relatively low level, climbs up through the busy season to a peak around June or July, and trends downward for the rest of the year. The SL ratio in
2011 appears to be tracking the historical trend so far this year, and it has been declining in the last couple months since it peaked in July. This downward trend could be an indication that the statewide median price will taper off at the end of the year, and a quarter-to-quarter decline in median price is likely for the fourth quarter in 2011.

Given the typical seasonal softening of home prices and the near-record low levels of mortgage rates, the off-peak months are an opportune time for potential buyers to find extra value in the market.

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