How do you time the real estate market where you live? Wouldn’t it be nice if someone could show you a timeline of bottoms and peaks of future real estate markets? You could make millions!!! *cough*
Okay, so no one can time real estate markets just right. Not even the government big wigs saw this market coming. Well, if they were paying attention they would have. So, what key market indicators signal up’s and down’s in the real estate market?
Existing Home Sales – Key Market Indicator #1
Existing home sales are one of the five major indicators of a real estate markets health. As you look into buying and selling investment property, your first step should be to look at home sales of the state, county, and neighborhood’s to get an overall feel of local real estate markets.
All real estate markets are local, but looking at existing home sales graphs of the state, counties, and cities of where you want to invest will give you a better overall picture. The best way to get this data is from a trusted Realtor. Spend 10-15 minutes a month talking to your agent about market trends.
During a decline look for neighborhoods that have maintained values better than others. Look for niche markets such as properties with amenities i.e.; on golf courses, beach front homes, best school districts, and homes with access to water rights.
Once you find a neighborhood that shows great value, watch the market for a deal or a foreclosure where there are none. You want to find properties that are below value but have above average characteristics. Location, condition, and schools should weigh heavily on your decision. You can’t afford to invest in average properties during a decline, they’re a dime a dozen so be picky.
New Home Building Permits – Key Market Indicator #2
New construction will usually show signs of recovery or decline before existing home sales. People that build homes are more cautious than people who buy existing homes. If markets are lacking confidence, people are scared to take on a 3-6 month building project.
As you look at home sales, watching the new construction market should be a high priority. You can find out how construction markets are faring by talking to local builders and focusing on new home starts numbers. A couple websites to watch for national home starts are: U.S. Housing Starts Forecast – U.S Census Bureau Starts Forcast – Utah New Construction Starts.
When watching construction starts, you can’t go month to month, as the markets are more volatile on a short term basis. You should study construction starts over the 1980′s and 1990′s to get a feel for up’s and downs in a market. When you feel comfortable reading the trends of the past, compare them to the trends of today.
Use these trends when looking at your niche markets. If you see good construction numbers in the neighborhood you’re following, you can move onto the next market indicator to help determine if it’s worth investing.
Notice Of Defaults – Key Market Indicator #3
A notice of default is where a homeowner has defaulted on their mortgage and the bank reports the default. Not all properties when a notice of default is filed go into foreclosure, but if you find neighborhoods with high default notices, the market trend will soon be in a decline.
Foreclosure’s bring down home values as banks are more willing to sell for less than market value in order to clear their books of toxic assets quicker. To find notice of default records you can check with local county record holders as they are public notice.
You don’t want to invest in neighborhoods where foreclosures are looming. Find neighborhoods with lower than normal foreclosure rates or neighborhoods that are showing recovery from a previous foreclosure decline. If you can pick up a foreclosure property in a neighborhood with no other foreclosure activity, you made a great investment.
If you put these three market indicators together to find neighborhoods with above normal home sales, descent construction activity, and below average foreclosure rates, you have found a good investment opportunity.
Foreclosure Sales – Key Market Indicator #4
Foreclosures can be an investors dream or a nightmare. Buying up foreclosure’s at the bottom of the market can produce a nice return as markets turn around. Buying homes in a neighborhood where foreclosure crisis hits can take you to the bankruptcy court.
Timing markets is closely related to foreclosure trends. Knowing when homes will go into foreclosure goes back to watching the notice of default trends closely. To take it a step further, watch local business trends. Is the local economy growing or contracting?
Watch city hall for discussions of new business movement into commuinties. If you find a neighborhood where a new Wal-Mart is breaking ground for instance, you can expect new jobs and foreclosure rates to decrease.
Following new business starts can lead to a decrease in un-employment which will lead to less foreclosure. Employment and foreclosure trends are directly related, obviously.
If you plan on buying a foreclosure be wary of fixer uppers. If you’re not experienced in fixing up properties, foreclosures will be a death warrant for your investment dreams.If you don’t know what you’re doing with a fixer upper property, team up with a local contractor to get bids and time frames for completion of work. Also, always get an inspection before purchasing.
Interest Rates – Key Market Indicator #5
As of writing this post, interest rates are at 50 year lows. However, just because interest rates are low doesn’t necessarily mean the market is good. Watch interest rates closely. Low rates means credit is cheap, but could also mean economies are struggling.
If you plan on investing by obtaining a loan, low interest rates could be the signal for you to buy. If you’re a cash buyer, low interest rates mean you have more competition, and it’s going to be harder to find that investment gem.
Interest rates have a large impact on people spending money. As you watch interest rate trends, follow rates that start to move up. Declining interest rates mean people will delay in spending money, which will cause local economies to compact, and values will decline. As interest rates start to rise, people are more willing to invest money, which is a direct indicator of appreciation.
As rates go lower, if the economy still fizzles like it is today, be wary of investing money. Appreciation will be farther off if people aren’t spending money. However, if you’re a long term investor, the best time to buy is when no one else is. By the time everyone else starts buying, you already have the best properties, and you’re the one selling them.
No one can time the market perfectly but if you pay close attention to key real estate market indicators. You can find the rivers and peaks before they happen, allowing you to sell high and buy low. When markets show 3 or more market indicators favorably, you’re in good investment waters. Markets with 2 or fewer favorable market indicators be wary. Good luck!
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I would like to know how accurate the key market indicators really are in terms of timing the real estate markets