We are continuing our 5 part series, Reading Housing Data 101, to help you better understand quoted housing statistics and avoid taking others’ conclusions at face value. We dealt with the distinction between local vs. national data, now let’s tackle the aspect of seasonality.
Seasonality
The real estate industry ebbs and flows in a similar pattern according to the season. Buyers typically buy in the fall, renters tend to lease in the summer and not much happens in the dead of winter. (This is true of almost every year except for this one: spring was just thawing demand, summer and fall were very active for buyers, and renters continued their activity into late fall.) To best compare data, researchers neutralize this seasonality effect and “seasonally adjust” data to make it more useful and relevant as it arises. This data will be reported as “SA”, versus the raw numbers of non-seasonally adjusted data referred to as “NSA”. Make sure you know which is which and overlay it on top of the dynamics of that year.
On a seasonally adjusted basis, for example, this past Summer saw sales volume rise, leading to headlines of sales beating expectations. On an absolute raw basis, however, sales were still significantly below traditional years. Another example: reading that SA housing starts are up by 20% does not mean that starts increased by this amount; rather that they beat the expectations of the smoothed out data we would have seen had we ignored seasonality.
What’s interesting about 2009 is that typical seasonal patterns became a bit less applicable, as the fall and winter season on the buy-side was much stronger than in previous years due to the pent-up demand of the first half of the year. Similarly, the rental market also saw a stronger fall season due to new graduates having their offers pushed towards the latter part of the year. Keep in mind that, during anomalous times, seasonality should be given less weight as an adequate reference point for discerning market conditions.
