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7 Factors That Will Signal a Market Change

“This time of year, end of summer just before fall, seems to always stall. Inevitably, people start talking – or better put, fear starts talking. We’ve been thirsty for new inventory in San Diego for a few years now, but the moment we get an “uptick” in listings, people react with nail biting or negativity; who will buy these homes!? And we know real estate reporting can be a little dry, especially when things have been good for such an extended time… so with each modest change in sales, inventory, development – it’s not uncommon to see quick speculation or hyped up article headings ready to suggest we are in for big changes, a new market, a turn for the…? In reality, it doesn’t always mean any significant change.

I appreciate this article, it doesn’t answer any immediate questions but it serves as a sensible guide to properly evaluating market fluctuations. A good realtor doesn’t just show homes, they know their market. They watch local, state & national market activity. They stay engaged and they stay focused on the numbers, not fear or hype.

The punchline – I don’t see an impending crash or bubble. I see natural fluctuations at this point and this natural fluctuation provides opportunities for both sides.”

-Sarah Scott | Scott Finn & Associates

So you have the tools to evaluate your market, here are the top seven things I look at to determine the true state of your local market:

  • New Construction: New construction is a great barometer for the health of a real estate market. Look in your area and determine the new construction permits and completions and starts. Without a healthy new construction market home prices must go up because there simply isn’t enough inventory.
  • Days on Market: It is important to watch the trends in days on market numbers but not panic every time that number goes up. It could just be a natural seasonal fluctuation. Compare last months or last year’s days on market number and you will easily be able to spot the trends.
  • Listing Inventory: Just because inventory goes up does not mean the market is significantly changing. Especially in areas where inventory has been low, it could simply be another sign of a natural season fluctuation. If the listings continue to climb and pendings fall then you have something solid to base your concern on, but rarely does this happen suddenly. Tracking these numbers on an ongoing basis is critical for being able to spot trends.
  • Pending Inventory: Pending sales show the “moment” of the market and this is one of the most important numbers to track. Pendings do fluctuate but you need to track pendings using comparable time periods and similar areas or product type.
  • List to Sale Price Ratios: This number clearly shows what people are paying for property and you can easily spot an aggressive “auction” type market when you track this number.
  • Comparable Periods: To look for signs of what the market is doing don’t forget to compare previous months and years to get a clear idea of where the market has been and look for the clues that show you where it is going.
  • Population Growth and the Economy: Is your economy shrinking or growing? If the economy is growing, the population in your area is likely growing. That is going to put pressure on housing demand. Markets stay strong where there is demand for housing due to population growth and a strong economic climate.

Please don’t mistake a natural market fluctuation with the sky falling. Remember, the media’s job is to get media attention. Sensational headlines don’t usually tell the whole story. Stick to the facts and evaluate your market with reason and sensibility.

Read the full article here