The real estate market is cyclical. If total home sales of successive years are compared January to December, a pattern is apparent. As shown by the graph below, sales grow through the beginning of the year, peaking late in the second quarter to early in the third. Then, activity drops off through the remainder of the year. There may, or may not be, a brief spike proceeding the holiday season.
This cycle means that trying to determine trend direction and rate by comparing successive months’ totals needs to be rationalized by same-month year-over-year changes. Even at that, anomalies can distort any perceived trend, unless the sampled period is greater than two or three monts.
On the graph below, compare the general shape of 2005 to 2006. 2006 mimics 2005, but is proportionally smaller. So, on a year-over-year basis, the trend is obvious. Now compare 2009 to 2010 (thru Oct).
At first glance, it looks like this year, so far, is better than last year. Not really. Through October this year, 30,931 sales have closed compared to 36,762 for the same period in 2009. The First Time / Move Up tax credit had the effect of creating sustained sales over an extended period in 2009, while a narrow spike in the first half of 2010 gives a false impression.
And finally, if you’re curious, here’s the sales for the past three months (Aug, Sep, Oct), and the respective corresponding YOY percent difference: 421, 493, 424; -3%, -4%, -3%
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