Are you planning to buy or sell a house in the near future — or both?
You’d do well to review the key housing market indicators that economists and real estate professionals use to assess the overall strength or “temperature” of a local market.
A word of caution: every market is different, and these factors are by no means the only indicators worth paying attention to. It’s also quite possible to read housing market indicators incorrectly. Don’t construe the following as financial advice; if you’re conflicted about whether to buy or sell a house right now, speak with your financial advisor and due your own due diligence.
Likewise, to get a true sense of housing conditions in your area, there’s simply no substitute for poring over local data and testing the market yourself. Besides, who doesn’t love a good open house?
That said, it never hurts to understand key housing market indicators that may influence your decision to buy or sell now — or wait until conditions improve.
Residential Construction Pace
Even if you’re not in the market for a newly built home, you’ll want to keep a close eye on the pace of residential construction in your area. A hot construction market may indicate brisk underlying demand for housing; in really hot markets, construction often can’t keep up with demand at all. By the same token, flagging construction rates may indicate flagging demand.
Non-Performing Loan Rates
Pay attention to non-performing loan rates in your neck of the woods. According to Florida real estate investor Ralph Serrano, banks don’t much like non-performing loans; once foreclosures occur, it’s in a lenders’ interest to offload the non-performing assets as quickly as possible. Mounting delinquency and foreclosure rates may therefore increase housing supply faster than buyer demand, creating a market imbalance that may benefit buyers.
New Home Sales
Again, you don’t have to be in the market for a new-construction home to use this metric. A faster new home sales pace may hint at underlying strength in the market. Pay close attention to the sales pace at your price point, since new home construction rate may not rise and fall uniformly across the spectrum.
Local Price Trends
It’s more difficult than you might think to ascribe causation to rising or falling home prices, since many local housing markets are highly seasonal. However, the home price trendline can offer clues about the underlying characteristics of the market.
Time on Market
Generally speaking, longer average time-on-market — the time elapsed between listing and sale — indicates lower buyer demand. In exuberant markets, properties often don’t appear in the MLS at all — they’re sold in “pocket listings,” instead.
There Are No Guarantees in Real Estate
None of the foregoing should be construed as the last word on assessing the temperature of a local housing market. Every market is different, with considerable variation in the degree of interplay between the factors described herein. There’s simply no substitute for close market analysis by real estate professionals and experts who’ve been in the game for you.
To put an even finer point on it: there are no guarantees in the real estate business. Take heed, buyers and sellers.