Real Estate Markets Are Local: 5 Items That Impact The Market
Seems like we are being bombarded with news and information about the real estate market. As you read/listen to this news it is easy to get confused as to what is actually happening. One day you are hearing that interest rates are going up and this will slow the market down. The next day you hear that there will be an increase in loan programs and this will spur the market on. The reality is that Real Estate Markets are local, meaning the local conditions are the most important items impacting the markets. What happens in California does not have much impact on what is going on in Illinois. More specifically, what is happening in Chicago doesn’t impact what is happening in Peoria. It is important that you understand what causes the local markets to change. Knowing this can help you identify the direction your local market is headed and allow you to make the correct investment decisions. Here are five items that impact the local market conditions.
Demographics
Demographics is statistical data that describes a population or market area. It can include unemployment rates, strength of schools, crime rates, household incomes, tax rates, population growth etc. Looking at as many of these as possible can give you an insight into the strength of the market. Don’t just look at one demographic and try and gauge the market. You need to look at these collectively to best gauge the market conditions.
Finding demographics can be easy with several internet searches. Look at the city website, you can find tax rates, crime figures, unemployment numbers, schools in the area, etc. Google income levels for the local area and any major news concerning the local area. Understanding the demographics often lead you to understand of the direction of the local markets.
Inventory
The forces of supply and demand impact the real estate market. If the supply is high, buyers are in a strong position. Likewise, is supply is low, then sellers are in a strong position. When supply is high, buyers can be choosier on properties. If they see something they don’t like, they can easily move onto the next property. When supply is high, prices tend to drop as sellers try to attract buyers. When looking to buy a house, make sure you work with your real estate agent and understand the current level of supply of houses in your price range, how it compares to historical levels of supply and what direction the supply level is trending.
Foreclosure/Short Sales
Foreclosed properties can have an impact on the market. When a foreclosed property sells below market value, it lowers the comparable sale of properties surrounding it. This impacts those houses that are for sale and even those where the owner is trying to refinance them. Multiple foreclosures make it even more difficult to maintain prices. You can find the current foreclosures at city hall. Check the foreclosure volume and how it has changed over the last 6-12 months. Your real estate agent may be able to provide this data as well.
Days on Market
This is the average number of days that a house is on the market. Data on the average number of days on market for given price ranges gives how slow or how quick homes are selling. This gives you another look at buyer demand. If the number of days is shrinking, it is a sign that buyers are active. If the average number of days on market is getting longer then buyers are shying away from the market.
Price
Price is what buyers and sellers are both after. Simply put, if prices are going up the market is more desirable. If prices are going down sellers are looking to get out and buyers are going elsewhere. I personally believe that price is more of a result of the four items mentioned above. However, when looking at price trends make sure that one or two sales aren’t skewing the data. A couple of houses selling really high or really low could give you the wrong impression of the direction of the prices. Look at mean or median prices rather than average prices. Your Real Estate Agent can give you data on price trends.
Remember markets are local. Investigate the five items mentioned to get your best assessment on the direction of your local market