If a client asked you how to know when a real estate market is increasing in value, what would you say? Prices going up is the first and obvious answer, but what else? There are a number of different metrics to watch, and the image below helps hit on some of the main issues. Anything else you’d add?
Markets tend to change over time rather than in an instant, so it’s important to know which metrics to watch. It’s also helpful to listen to what buyers are saying. After all, there is something about consumer confidence and the mood among buyers that cannot always be captured in one neat little metric. The other big question we must ask is: Why are values increasing? Remember that an increase in housing supply or interest rates can change the direction of the market in a heartbeat too (especially after the Spring seasonal market fades). This is why it’s also important to know the signs of a softening market.
How to Think Like an Appraiser: I’m excited to be teaching a class in a couple days at the Sacramento Association of Realtors. The class is called “How to think like an appraiser”, and we’ll hit on how to choose comps, how to make adjustments, and tips for working with appraisers. This will be very practical, and we’ll have many case studies to talk through in the class. See the image and register online here.
Question: What other signs do you watch to know if the market is increasing?
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Awesome infographic! This is definitely a solid, concise way to look at whether the market is increasing or not. Thanks so much for sharing!
Thanks so much Jordan.
Great post as usual. Now, if I could be playful for a minute, I think you could also call that chart, “Signs of an Improving Market.” This is because, if many of those chart labels are declining, increasing, or getting better, the market could still be weak and not yet increasing. For an increasing market the factors would be low, high, or strong. 😀
Thanks Gary. I always appreciate your take. I guess we’d have to parse what the difference is between a market that is “improving” and “increasing”. Is there a difference? The market may be increasing in value right now, but that doesn’t mean the market is strong or even healthy. Values were certainly increasingly rapidly in 2005, but that wasn’t really a good thing, which everyone knows with the benefit of hindsight.
Your comment underscores the importance of looking at all the metrics and weighing them. I would say if most of these things are happening, it’s hard to think values wouldn’t be increasing. Yet that certainly is not always the case. As with everything in real estate, we have to know the context. Moreover, the two big questions to ask are: What are values doing? And why are they doing it? Also, just because values are increasing in one neighborhood or price range does not mean they are increasing in other areas. I am finding that I am indicating an increasing market in some neighborhoods right now, but not in others.
Good points Ryan, especially that prices can be increasing in a market that is not strong or healthy. I was merely having fun being the devil’s advocate.
It’s all good. I love the conversation, and I’m thankful for it. I guess I sounded pretty serious in my response. 🙂
Concessions and credits are often the hidden price swings that don’t get reflected in the comps… especially with new home communities….. a ton of money in “free” upgrades or closing costs when they need to fluff up a quarter or move inventory, zero when they have backlog….
Today I just sent a sheet of “concessions, credits and upgrades” to a seller to help him understand his price was a little high….IMHO…. the 5 comps showed an average of 1.6% in credits. Mid $300s.
Well said, Jeff. Great research for your client too. Concessions definitely tell us about the market. If buyers are in charge, they get concessions and credits back, but if sellers are in control, they don’t have to give anything to buyers. In later 2012 and early 2013, sellers didn’t give a thing to buyers, but that all changed last year as buyers took a greater share of the market. It’s amazing what more inventory and less cash investors can do to help a market normalize. It seems right now in some price ranges the market is really competitive, so buyers cannot afford to ask for too much, though we do see incentives built into new construction for sure. Those built-in concessions are telling too.
Ryan, I like the follow up you have to Gary. There really is a difference and you explained in great. Increasing doesn’t always mean improving! Great infographic as well!
Thanks so much Megan. There is always so much to watch, and markets are always changing. I’ve thought of this infographic often lately as the market has been heating up (as it normally does this time of year). Thanks again for sharing your take. Your opinion is always welcome here.
And sorry for misspelling your name. I just realized that as the comment was posting. 🙂