Leading Indicators

FAR 187 Real Estate Leading Indicators

Expected Air Date: 9/17/18

Opening

Thoughts and Prayers: Hurricane Florence

Nearly every event I attend or speak, someone is asking questions about the state of the market. Those who were paying attention 10 years ago when the market crashed are concerned it will happen again. We plan to continue to report on the state of the market as it goes through its inevitable cycles. We will talk about what we see, how we are applying it in our business and perhaps give you some ideas about yours.

But we had a further thought about adding real value to your lives by sharing with you our data points and our sources for the information we share with you. Some of our data and research comes with a price attached, but today I’m going to give you some no-cost techniques that will enable you to stay on top of the real estate market.

The question is always about the state of the current market, but what we really want to know is where the market is going. Are we going to crash? Is it going to keep going up? One of the great things about real estate in this regard is its LACK of volatility. Once you know where to look and what to look for, reading the real estate market isn’t rocket surgery. I’m going to talk about these things and how they impact your decision making in your real estate business.

You are going to want the show notes from today so you can see a glimpse of how we research the market and keep in mind how this impacts our business.

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News!

Guest:  

Topic: Real Estate Investing’s Leading Indicators

This is how we predict where the market is going.

  1. Pricing Trends. Impact: Informs our Offer strategy
    1. Where is the market heading in the past quarter?
    2. What is the year over year difference? Which direction is it heading?
  2. Average Days on Market. Saturation rate. Impact: Informs our Offer price due to hold time.
    1. How long does it take to sell a house?
      1. https://www.zillow.com/sellers-guide/average-time-to-sell-a-house/
      2. https://www.thebalance.com/how-long-does-it-take-to-sell-a-house-1799050
      3. https://smartasset.com/mortgage/how-long-does-it-take-to-sell-a-house
      4. https://www.inman.com/2017/11/10/5-key-factors-average-time-sell-house-every-homeowner-needs-know/
  3. How many months (or weeks) supply of inventory is out there? 3 months is balanced
      1. At the rate properties are selling, how long would it take us to sell out the current inventory?
  4. Housing Starts
    1. https://www.census.gov/construction/nrc/pdf/newresconst.pdf
    2. https://tradingeconomics.com/united-states/housing-starts
    3. Permits issued are up slightly, Starts are down slightly, year over year. We cannot count on new housing starts in the near term to ease inventory concerns.
  5. Mortgage Default and foreclosure rates: Google: “Foreclosure Data” and “Default Rate”
    1. https://www.attomdata.com/news/market-trends/april-2018-foreclosure-starts-dataset/
    2. https://www.frbatlanta.org/community-development/data-and-tools/foreclosure-resource-center.aspx?panel=1
    3. https://www.realtytrac.com/statsandtrends/foreclosuretrends/
    4. https://www.attomdata.com/pre-foreclosure-data/
    5. https://www.housingwire.com/articles/43318-mortgage-delinquency-keeps-falling-drops-for-19th-straight-quarter
    6. The rate of foreclosure has dropped for 19 straight quarters. It is at an historic low and has nowhere to go but up. Therefore it is easy to predict it will go up soon, but that’s no reason to panic. The rate should grow until it reaches it’s historic average.
  6. Interest Rates: Impact – Rates determine relative affordability. Can impact sales.
  7. Overall Economic Conditions: Strong Economy, low unemployment = buyers. Weak or uncertain economy will slow market down.
  8. Construction Costs: Affect our rehab and holding costs, impact our initial offer.

We buy in any market so what difference does it make?

If we know where the market is heading we can make adjustments:

  • Offer amount
  • Rehab Scope
  • Selling Price
  • Anticipate holding costs more accurately.

This is all a part of being a responsible business owner and is the difference between a true professional and someone who took a seminar and is buying properties with hope, optimism and crossed fingers. And this is why I say on nearly every show, “it’s not for everyone.” So what should you do with all this? If you’re in the real estate business these trends affect your business whether you are paying attention or not. The difference is your awareness of the situation. And this is the difference between being able to plan for the future or simply reacting to it when it gets here.

Motivational Thoughts for the day

  • Your true success in life begins only when you make the commitment to become excellent at what you do. — Brian Tracy