As the weather gets warmer, millions of Americans are gearing up to buy a new home. We’re entering peak real estate season, as May, June, July and August account for 40% of the total number of homes sold throughout the year.
But, if you want to be a savvy consumer, you’ll start your search for a new home closer to Thanksgiving than to Memorial Day.
House hunting in the winter has several advantages, such as decreased competition for properties and the chance to properly assess a home’s heating system. Plus, you might even find a seller so overcome by eggnog and holiday cheer that they offer you an amazing deal. (We’re scientifically happier over the holidays, after all.)
But there’s an even bigger and simpler reason to consider waiting until the weather cools before you buy a home: It’s cheaper.
The latest research from real estate website Zillow shows that those who buy at the peak of the market (April and May) can expect to pay a premium of $1,500 on average. Houses listed in December, on the other hand, sell for $3,100 less than average.
Unsurprisingly, the big guns of the housing industry recognize this trend. Lawrence Yun, chief economist for the National Association of Realtors, points out, “Year after year, closings in January tend to show a dip in prices, suggesting that buyers who made offers in November and December got the best deals.” As an example, Yun says, “In the summer of 2014, median home prices climbed past $220,000, only to drop below $200,000 in January of 2015.”
Another compelling case study comes out of Dallas, where it’s been shown that prices vary by as much as 12% depending on the season: Houses are more expensive in the summer and cheaper in the winter.
That means if you’re looking to buy a $200,000 home in Dallas, you could save $24,000 off the purchase price if you delay your purchase until the winter. If you took that $24,000 and invested it in a low-cost index fund that returned 7% a year for the next 30 years, you’d have an extra $182,000 in your pocket as you sent in your final mortgage payment. That’s a solid chunk of change simply for doing your house shopping against the grain.
Of course, the main reason for the cheaper prices is the law of supply and demand. There are more houses available in the spring, but there are a lot more buyers, too — many of whom don’t want to uproot their kids halfway through the school year. And doing your search when there’s more available inventory increases the odds that you find a house that ends up being a perfect fit.
But, that doesn’t mean you can’t find something great in the winter. It will just take a little more effort. Silvana Tenreyro and L. Rachel Ngai, professors at the London School of Economics, pointed out as much in a recent paper on housing prices. Searching in the winter, according to the authors, is “a bit like searching for bargains in a leftovers’ sale. You might see low prices, but you are less likely to find your combination of size, color, and style. Only if you search a lot will you get the lucky draw.”
So, if you have ample amounts of patience and perseverance, you should be able to find a home that makes you happy, even when looking during the winter – and you could get it on sale to boot.
Another advantage of shopping in the winter is illuminated by a well-documented phenomenon called the “too much choice effect” (also referred to as the Paradox of Choice). This is when “an overabundance of options eventually leads to negative consequences, such as a diminished motivation to choose any option or a decreased satisfaction with the finally chosen alternative.”
Having too many options – even when it comes to minor choices, like what to have for lunch or what to watch on Netflix – can leave us feeling overwhelmed or making rushed decisions. And in the end we’re more likely to regret our choice as we reflect on all the other options and wonder, “What if?”
As Trent puts it, “Some choice is better than no choice, but there quickly comes a point where more choices are actually a negative rather than a positive.” If you focus your efforts on a diligent home search during the off-season, you might mitigate the effects of the too much choice effect, because there aren’t as many options on the market.
Shopping in the winter could also help you avoid falling into the hedonic adaptation trap. This refers to the mechanism by which people rapidly get used to changes and revert back to a base level of happiness. As Sonja Lyubomirsky, a psychology professor at the University of California Riverside, told the New York Times, “We buy a new house, we get accustomed to it… and we stop getting pleasure from it.”
In essence, even if you do find your dream home in the spring bonanza, it won’t make you happy for very long. We think the extra square footage and walk-in closet will make us happy, but in the long run, they won’t. So instead of holding out for a dream home – or worse, overspending for one — you’re better off being realistic about what you need, and finding something within your budget. And it’ll be easier to find something affordable outside of the peak real estate season.
In the end, though, only you know which tradeoffs make sense for your family. No one should rush into a major purchase just because they’re trying to take advantage of a small seasonal discount. It’s important to do thorough research and to see a lot of places, if only to get a better feel for the market, as this is a purchase you might be living with (and in) for 30 years or more.
It could be worth the extra thousand bucks or more to get a house in the spring if you’re certain it’s the perfect fit. I know I’m grateful my family picked the one house in my neighborhood with a driveway suitable for playing basketball, as I ended up spending countless hours practicing on our hoop and ultimately ended up earning a living playing the sport.
If you’re reading The Simple Dollar, you’re probably up for a financial challenge. Making your own laundry detergent, buying secondhand clothes, and starting a side hustle all take determination and outside-the-box thinking. If you apply that same attitude to house hunting, you’re likely to realize that searching for a home in the winter can make a lot of sense, even if it means bucking conventional wisdom.