When it comes to real estate, we’ve all heard there is no crystal ball....OR IS THERE?
More than ever, being informed, and learning to interpret your market’s specific economic factors will keep you one step ahead of your marketplace AND your competition.
Understanding the principles of “Supply and Demand” is a great place to start.
In Real Estate, we normally define these 2 simple factors as:
#1: Active Listings, which represents SUPPLY
#2: Sales, which represents DEMAND
The information is pretty basic...however, it’s the patterns of that information that will provide you with insight into where your market may be going!
Let’s compare a Buyer’s and Seller’s market using this information:
In a perfect Seller’s market, or a marketplace where the Seller’s are basically in the driver’s seat, the number of listings (or market competition) would be decreasing, while the number of sales (or buyers purchasing homes) would be increasing.
Whereas...In a perfect Buyer’s market, or a marketplace where the Buyers are basically in the driver’s seat, the number of listings (homes to choose from) would be increasing, while the number of sales (buyer’s purchasing homes representing competition) would be decreasing.
It’s imperative that you understand these definitions, because it is the changing of these factors that will be the FIRST indicator of a market in transition.
Let’s use an example. You are currently in a Buyer’s market.
From faithfully tracking this information, you find this month that the number of active listings YTD has decreased when compared to active listings through the same time last year! Could this be significant? The arrow flipped from listings increasing (more homes to choose from) to listings decreasing, (less homes to choose from).
What if you continued to track these factors and over the next several months, active listings YTD continue to decrease, and lo and behold, for the first time in many months...perhaps many years...the number of sales are increasing. This is a reliable indicator that more Buyers are entering the marketplace.
Is it possible, that you are witnessing the earliest indicators of a transition from a Buyer’s market into a Seller’s market?
Wow, would knowing this information provide you with a valuable tool on:
Your listing presentations? When counseling Buyer’s on market patterns? And, especially...When working your investor buyers and sellers?
Could you tailor your research to track an area as large as a city or narrow your market research to an area as precise as a neighborhood? Absolutely!
Yes, there are factors in today’s market that could unexpectedly shift changing supply and demand patterns, such as the introduction of pinned up foreclosure inventory held by many banks. That being said, it would be prudent on your part to know what may be coming your way on that battlefront. For example, dramatic unemployment increases in your marketplace could be a reliable indicator that the supply of listing inventory will grow in the foreseeable future.
You can bet on this, by the time a shift in your marketplace has hit the media, there will be MONTHS of data that would have provided YOU with the earliest indicator of what was coming! So forget the Crystal Ball, you don’t need one to get ahead of your market and your competition. All you need to do is learn the basic principles of supply and demand and APPLY them!