Experts weigh in on how to judge the health of the current market.
Realtors are the experts. Along with their morning coffee, many grab their smartphones and peruse the market landscape (new listings, sold homes, closed escrows, new businesses coming to town) as well as where interest rates are going. As each day goes by they see trends and are on hand for times of boom and bust, depending on a host of influences, including the addition of new shops or schools to an area or changes in local regulations.
While the average homebuyer or rookie flipper may read a bit of real estate news as well, they may not be in tune with a number of elements that can strongly affect the growth of a district. Watch the investors, however, and you may get a feel for how much of an impact a change or trend will have. Members of the Forbes Real Estate Council discussed how they keep their fingers on the pulse of the local market, as well as what factors they deem crucial to identifying growth.
One member says hetalks to tradespeopleand asks them to compare their level of business activity to what it was a year or so ago. “Many times they will talk of new development or repurposing that the general public is not yet aware of,” he says.
Another looks forgrowing employment and new employersmoving into a local area, adding, “This is an indicator that new employees will be moving to the area to start work, set up the office and generally long-term travel that occurs between various company offices.”
Of course,population growth and demographic changesare huge signs of change. “Depending on the demographics, we would be able to plan our investment strategy—for instance, massive growth in university student numbers in an area would mean studying housing investment in the short term and rental apartments midterm,” says another member.
It’s a good idea to look at the numbers as well, studying thetotal number of showings across all price ranges.“Not every showing will result in a sale, but when I see properties in all parts of our market and in all price ranges being shown consistently, then a high number of sales always follows and is the number one indicator of a hot market,” says Urban Acres Real Estate’s Mike Bails.
And then there is the local bureaucracy —changes in government regulationsmay be a sign of market appreciation. The council points out how this year alone, changes with regard to marijuana regulation and the implementation of Opportunity Zones have led to some pretty significant shifts in markets around the country. “As investors start to really grasp and implement the advantages of Opportunity Zones, market conditions will continue to trend upward,” says member Danielle Pierce, of Women, Wealth, and Real Estate.
Rent growthis another bellwether of the state of the market. Study how much rent growth is occurring in renewals. “New space is obviously going to lease at a higher rate, but you can really see the impact of the hot real estate market in how much rent growth occurs when leases come up for renewal,” advises CBRE’s David Murphy.
And lastly, be a student of the currentinventory and demand,calculating the absorption rate. Rodeo Realty’s Ben Salem says, “First, determine the number of homes closed in your market over a specific period—say, 12 months. You can get this data from the MLS. Next, divide the number of homes by the number of months in the period—in this case, 12. Last, divide the rate into the number of current listings.”
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