There is a commonly held misconception that the real estate market hibernates like a bear. It goes into a deep slumber beginning in December and wakes up hungry in the spring. This fallacy can lead to a sense of complacency on the part of real estate agents, developers and lenders. At worst it engenders a feeling of helplessness that suggests any efforts are doomed to failure.
Those who buy into this perception base their thinking on graphs such as the one to the right. The graph seems to clearly show a strong impact of colder winter weather, or children attending school, or shorter daylight hours, on the housing market. The graph and all these rationales are wrong.
A Historical Trend that is Ending?
The first thing to notice about the graph is that it is the average for each month from 1999 to 2015. While it is certainly fair to average out several years to account for the disruptive impact of an unusually severe winter, averaging over this period of time obscures that fact that the impact demonstrated is fading over the years. It was much more pronounced in the past, which may account for the fact that the perception is so widely held.
The graph to the left shows the monthly sales for the years 2005 through 2015. Sales for 2005 through 2008 certainly confirm the seasonal slump hypothesis, but sales since those years which were marked by unusually high volumes, show a much smaller seasonal differential. Sales for 2011, for example, show only a slight change in January and February, and remained consistent in December.
No Winter, No Winter Slump?
Monthly sales data from the National Association of Realtors for 2016 shows that even a national average hides the differences between regions. Analysis shows that areas of the country such as the West and South show a smaller seasonal dip than the Northeast, where winters are most severe. This is in keeping with the conclusion that all real estate is local.
Even those areas which have some of the winter lulls are not as severely impacted as commonly believed. The graph at the start of this article appears to show a significant increase in activity during the summer months, but the scale skews perception. It begins at 5% and tops out at 11%, emphasizing the difference in each month’s sales volume.
According to housingwire.com, the source of the data, the four slowest months of the year account for 27% of the year’s total sales. But those months are a full 1/3 of the year, and so should account for no more than 33% of the annual total. This mean they lag the summer months by only 6%, which can hardly be considered a market in hibernation.
A Self-Fulfilling Prophecy?
To a certain extent, the existence or non-existence of a seasonal slump is irrelevant to the success of a real estate developer or agent, regardless of the market they are in. A seasonal slump can be nothing more than an excuse to be less diligent because “it’s winter”. Real estate always has some barrier that has to be overcome. High interest rates, low consumer confidence, a lack of marketable properties; the list is endless.
And, unfortunately, many times even the most diligent, seasoned professional can fall prey to a bad news story and respond with less effort instead of more to overcome market conditions. It has been said that the first budgetary casualty of a drop in business revenue is marketing. This is a mistake. A drop in business means that more marketing is necessary. A slump in the real estate market for any reason is a clarion call for more activity.
At the minimum, stepping up marketing and other efforts in the winter months can be thought of as planting seeds that can yield greater activity for the rest of the year. Farmers do not sow and harvest in the same month, and real estate professionals can remember this simple fact to go against “common knowledge” and stay busy all year long.