Hopefully, value is not the first word that comes to mind when one hears the word home. But even if it is, a house’s price is thought to be relatively stable, shifting on the scale of years, not months (barring any system-exploding market shock, of course).

What makes the housing market peculiar is that its buyers are unusually idiosyncratic—some people will fall for a house just because it has a walk-in closet, an extra bathroom, or a breakfast nook. These idiosyncrasies cause two different buyers to place wildly different values on the same house, which can produce some surprisingly rapid fluctuations in price. Over the course of a year in Dallas, for example, the annualized rate of price increases varied by an average of 12 percent between 1987 and 2012. That’s a hand-picked extreme example, but that average is between roughly five and seven percent for homes in the U.S. and the U.K. But these fluctuations, as erratic as they seem, actually occur very predictably: The cost of a home is higher in the summer than in the winter.


Average Change in House Prices Between 1991 and 2012, by Season

Ngai and Tenreyro

These seasonal shifts are well documented—most housing indexes provide “seasonally adjusted” prices—but many models of the housing market have failed to account for them. Why might that be? L. Rachel Ngai and Silvana Tenreyro, both professors at the London School of Economics, have a paper in this month’s American Economic Review proposing a model to correct this oversight. (Slate wrote about Ngai and Tenreyro’s model six years ago, before it had been fully fleshed out.)

“In the summer, there are many houses for sale, people find their ‘ideal house’ quickly, and they are willing to pay a higher price,” Tenreyro explains. While it’s true that homes generally cost less in the winter, that’s also when there are fewer out there to choose from—and thus when it’s harder to find a perfect fit. “It’s a bit like searching for bargains in a leftovers’ sale,” Tenreyro says. “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 you might get the lucky draw.”

Ngai and Tenreyro haven’t built a model that explains exactly why prices vary with the season, but they can at least speculate. It might seem like weather would be a factor—it’s more pleasant to scope out properties during the warmer months—but prices vary significantly even in places where summer and winter are tougher to distinguish, such as Los Angeles and San Diego.

They guess that it has to do with the timing of the school year. “We think parents of school-age children find it more convenient to search in the summer,” Tenreyro says. But, as she notes in her paper, that contingent is only estimated to make up less than a third of prospective home buyers at any given time—a substantial proportion, but not enough, it would seem, to determine when the majority of homes are sold.

This group's disproportionately large impact gets to the heart of how Tenreyro and Ngai's model works, in that it accounts for a snowballing effect. “Because there is this critical mass that prefers searching in the summer, then sellers put their houses on sale in the summer,” Tenreyro says. “And because there are more houses for sale, then other buyers also then prefer to search in the summer and so on and so forth. The effect gets amplified as a virtuous circle.” In this way, the unique preferences of a relatively smaller group of home buyers ends up dictating the market for everyone else.

So, for the typical home buyer, the takeaways from Tenreyro and Ngai’s paper are straightforward. People who move into new homes during the summer are often more satisfied with their purchases: They tend to live in those homes longer and spend a lot less money on remodeling. But, for those rare few who aren’t as picky about a house as everyone else, it makes sense to buy in the winter, when the pickings are slimmer but the prices are too.