Property Seasonality (Download PDF)
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“To be interested in the changing seasons is a happier state of mind than to be hopelessly in love with spring.”
With the winter period finally coming to an end things are starting to look a lot brighter. The days are longer, the clouds are clearing and the real estate market is coming out of hibernation. It is well known that there is a seasonal cycle in the housing market. Sale volumes are higher in the warmer months and lower in the cooler months. This is a worldwide phenomenon. In this months edition of The Secret Agent Report we look at the data to test the theory.
With the winter period finally coming to an end things are starting to look a lot brighter. The days are longer, the clouds are clearing and the real estate market is coming out of hibernation. It is well known that there is a seasonal cycle in the housing market. Sale volumes are higher in the warmer months and lower in the cooler months. This is a worldwide phenomenon. In both the USA and the UK, the housing market experiences above trend results for both prices and transactions in the two warmest quarters of the year. According to one study, in the UK, the difference in annual growth rates for house prices between hot and cold seasons was 6.5%. (Tenreyro, 2009)
Secret Agent decided to investigate this cycle to quantify how much seasonality influences house prices in the inner city property market of Melbourne. In the first part of this report, we analysed the results of house and townhouse sales for the last ten years in the inner city suburbs of Melbourne. All two and three bedroom townhouses and houses were included in the study if they were sold between January 2004 and August 2014 and if information about the number of bedrooms, bathrooms and land size was accurately recorded.
At a glance, there seems to be a positive correlation between the amount of sales and the average sale prices during the period. This is consistent with the notion of “hot and fast” versus “cold and slow” periods in the housing market. However, the results do not seem to entirely match what would be expected in the different seasons.
Summer was the worst performing month in terms of number of sales and average sale prices. It would be expected that since the weather is warmest during summer, if warm weather positively influences house prices then, the average sale prices would be highest in summer. This was not the case. The turn of the seasons, autumn and spring performed the best with both the highest number of sales and highest average prices. Winter did not perform as badly as expected with a significantly greater amount of sales compared to summer and also a higher average sale price. However, if you compare winter to spring, the results appear as you would expect with the average number of sales picking up in spring and prices increasing quite significantly. Overall spring was the standout season which is consistent with the general perception that spring is the best season for real estate transactions.
There are many other factors that could be impacting house prices in different seasons that couldn’t be controlled for in this study. For example, spring not only brings warmer weather, but also a greater supply of stock to choose from. Owners with better properties tend to wait until spring to sell, and properties which have beautiful gardens will be listed during spring to showcase these at their fullest. It is interesting that even though supply and demand both go up as the weather gets warmer in spring, prices also rise concurrently. In general, properties being purchased equate with properties coming onto the market on the other side of the equation. This means that the supply of properties rises alongside the market demand (though slightly later). Since both supply and demand rise, basic economic theory would indicate relatively stable pricing but interestingly the market consistently experiences a price spike as the weather begins to warm up.