If the real estate market did shift…

The new buzz word in real estate is SHIFT. Everywhere I go I hear this word, and it seems like every other article is about a coming change in the market. Thus the question becomes, how would you recognize if the market did begin to shift? What signs would you look for? Let’s kick around some ideas below and I’d love to hear your take in the comments. Any thoughts?

change sign - purchased by sacramento appraisal blog by 123rf dot com

Key points when considering a market shift:

  1. Markets go up and down: Just like the stock market, gold, or any other commodity, at some point real estate values will go up and at some point they’ll go down. Bottom line.
  2. See it first in the listings: When the market does eventually “shift”, we’ll see the change in the listings before the sales. This means properties will begin to struggle to sell at the same level as the “comps”, which will lead to price declines. This underscores the importance of paying close attention to pendings and listings to see the current market. Granted, every year someone says, “the market is declining” when the fall season begins to unfold because values begin to soften. Just be aware there is a difference between a normal seasonal softening and a definitive declining trend.
  3. Word on the street: One of the ways we’ll know the market has changed is the real estate community will feel it in the number of offers, feedback from buyers and sellers, more credits being given to buyers, etc… We can always look at stats, but there is something powerful about the word on the street from real estate insiders.
  4. The previous peak: It’s always interesting to see how close or far prices are from their high point ten years ago, but there isn’t any rule that says prices have to get back to their height for a decline to happen.
  5. Watch higher & lower prices: The market isn’t always doing the same thing at every price range or in every neighborhood. When it comes to values declining, watch the top and bottom carefully because one of them might change direction before the other. Which one?
  6. Other metrics: I included an image below to talk through some of the metrics we might watch to know the market is softening. Again, these things all tend to happen during the fall months every year, but no matter what time of year we are not likely to get to full-fledged value declines without passing through a softening stage. Be sure to watch the sales to list price ratio too (I forgot to include that in the image).
  7. The power of lenders: Values have increased these past four years, but wage growth has been more or less stagnant. This means some buyers will now begin to struggle to afford higher prices. The temptation for lenders is to develop more creative financing to help buyers keep playing the game. Does anyone else think Kenny Loggins’ Highway to the Danger Zone would be good background music for this point?
  8. Future clients: This conversation can feel stressful for those who work in real estate because a change in the market can lead to a change in clients. Yet markets always change, so that’s something we can be prepared for, right? Blockbuster Video had a lucrative operation until they didn’t adapt to the way the internet changed the DVD rental landscape. When it comes to business we can spend so much time holding on to the way things have been that like Blockbuster we don’t take steps to adapt and position ourselves to be Redbox or Netflix so to speak. Here are two questions to continually ask: Who are you clients going to be in the future? What are your clients going to need in the next few years?

Signs of a soft market

I hope this was helpful.

Questions: What is point #9? What other metrics can we watch to see the market change? Anything I left out? I’d love to hear your take.

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How do you know when a real estate market is getting soft?

Property values have not been declining lately, but how would you know if they were possibly going to decline? What metrics should you watch to be able to know if a real estate market is softening? Have a look below and let me know what you think. Anything else you would add?

signs of a soft real estate market - by sacramento appraisal blog - 530

Since the temperature of a real estate market often evolves over a period of time rather than an instant, it’s important to be able to look to the right metrics to help us interpret what the market is doing. Once we compare the metrics above along with sales and listings, we can get an idea of how the market is moving. Of course other metrics such as interest rates, cash investors and lending standards can definitely impact values too. As I always say, real estate is like a multi-layered cake because there are many layers to the market.

Image-purchased-at-123rf-dot-com-and-used-with-permission-14688774_s-smallerA Rumor About Appraisers & Listings: There is a rumor in the real estate community that appraisers cannot use listings to adjust for how the market has moved (whether up or down). This is definitely NOT true. Appraisers can make adjustments in reports based on listings. As we all know, today’s sales reflect the market from say 30-60 days ago when the sales got into contract, whereas reasonably-priced listings represent what the market is doing right now. Therefore if listings are priced higher, appraisers can make an upward Date of Sale adjustment to sales to reflect however listings are priced. Or if all listings are priced lower, appraisers can make a downward Date of Sale adjustment to sales to compensate for the market cooling off or declining.

SacBiz Journal EventClass I’m teaching for the Sacramento Business Journal: On May 21 I am co-teaching a class on blogging and using video for business for the Sacramento Business Journal. I know this is late notice, but I’d love to see you out at Drexel University tomorrow. The cost is $99, but that comes with a subscription to the SacBiz Journal, so the class pays for itself. Click the thumbnail for details or see this direct link.

Question: What other signs do you watch to know if the market is getting soft?

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