If you’re thinking about buying a house soon, you may be wondering when it’s the right time to start shopping so that you can get the most bang for your buck.
We’re just coming out of the deep freeze here in Detroit, as in many northern communities, but the winter can be a great time to buy. Winter home buyers have more bargaining power because fewer buyers are out there, and sellers are more motivated to negotiate. (Sellers also have the advantage of knowing these buyers are motivated and serious.)
One of my favorite things I get to do on the Zing Blog is interact with our wonderful readers in the comments section. One of our readers pointed out that as great as this advice sounds, it doesn’t really work in places like Florida where the weather is warm year-round. What’s the best time to buy in these climates?
First, I’d like to let Yolanda L. know I’m jealous of where she’s looking to buy. More importantly, challenge accepted.
Before starting my research, my hypothesis was that it was probably best to sell in warm climates in the summer when it was hottest. Just like the cold, I figured people really don’t like stifling heat, either. And I assumed there would be less competition because the people who live in the South just for the winter would have moved out, leaving only the year-round residents.
Any hypothesis is useless though unless it’s subjected to scientific scrutiny. So what’s the real best time to buy a house in your region? I dug into the data.
The Data Set
In order to test the best time to buy a house in each region, I needed a lot of data on house prices. It can be hard to do this because not every house that’s comparable to yours in your area is on the market at the same time.
To get around this, we’re using Zillow data broken down by metropolitan area. The data covers each quarter for the period of 2011 – 2015. Zillow avoids the market comparison problem by using an algorithm to compute what the estimated price of a home would be if it were on the market at any given time. If you’d like to learn more about the algorithm behind the building of the data set, you can check out the methodology.
For the purposes of breaking these out by region, I’ve taken the top 10 cities in the Northeast, Midwest, South and West in order to get an idea of the time that’s best to buy across the country. To avoid any confusion over which states go in which region, I’m using the definitions provided by the U.S. Census Bureau.
When Should You Buy?
I was kind of surprised by the results that came out of this. I had figured there would be a sweet spot in the market that was different for at least a couple of these regions. I was wrong.
I took the data from the last five years in each city and broke it down by quarters. For example, the average Q1 sale price in Chicago from 2011 – 2015 was taken and then combined with the averages for each of the other nine Midwestern cities to get a regional average for Q1 in the Midwest.
This process was repeated for all quarters in all regions to complete the data. Thank goodness for Excel formulas! The results?
As you can see from the gallery at the bottom of this article, no matter what region you’re in, it’s always better to buy in the first quarter (January – March). For the last five years, price averages have been lower during the first quarter than at any other point during the year.
It’s important to note that correlation doesn’t always equal causation, so let’s take a look at another possible explanation for this phenomenon.
The Market Is Hot
Part of the reason prices are lowest at the beginning of the year may have to do with the fact that we’re in a period of rising home prices in general. In both the data below and our own research on the housing market, you can see home values have been on an upward trajectory across the country since 2012.
Will home values eventually come down? I’m sure they will someday, but people who claim to be able to time the market and know when that will be are probably fooling themselves.
It makes the most sense to buy as soon as you’re ready while home values are still going up: You’ll be able to get in and experience the gains in equity that come along with rising home prices.
You also never want to limit your options. By looking year-round and not limiting yourself to a particular season, you give yourself a better chance to find the home that’s right for you because you’ve seen the most inventory. Keep in mind that real estate values are heavily dependent on local market conditions, so it’s important to take your location into consideration when thinking about your home value.
If you’re looking to get started buying a new house, you can check out Rocket Mortgage. If you have any questions, we can help answer them in the comments below.
If you’ll excuse me, I’m going to take a break from the heavy math.
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