The Pulse of the Market

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Posted by Denise Lones on September 11th, 2014

How to Take and Benefit from the Pulse of the Market:

Agents have been contacting me these past few weeks asking me when the market was going to come back.

I didn’t realize it had gone anywhere.

I wrote about the strength of our market a few weeks ago, but it seems that any time the market takes a pause or a breather, agents will become concerned. However, a healthy real estate market ebbs and flows with fast and furious moments and times that are slower. Many areas have been experiencing a slightly slower period during the last few weeks of August and the first two weeks of September.

I can assure you that the fundamentals of the real estate market are currently strong and any pauses are natural. I could easily present a strong case that this temporary slowdown will be good for the market because it slows down multiple offers and inflated prices. When prices rise too quickly it upsets the market because it takes some buyers out of the buyer pool. When buyers are priced out and are unable or unwilling to buy, then inventory increases, and sellers can end up with listings that languish on the market.

To take advantage of this robust “resting” market you have to understand the formula to determine its pulse. By understanding how to take the pulse, you are better-equipped to educate your clients, help them make informed decisions, and avoid any stress caused by unnecessary worry about slight changes in the market. Additionally, this allows you to take action and find new opportunities.

Formula for taking the pulse of the market:

1) EMPLOYMENT: Know your employment numbers and know what direction they have been going for the past 90 days. Ultimately healthy real estate markets are driven by employment. Nationally, August’s unemployment rate stood at 6.1% – the lowest it has been since September 2008 – which marked the beginning of the recession. Research your local, regional and national employment numbers and track those changes on a quarterly basis. You can track unemployment rates at www.bls.gov (look at historical data here: http://data.bls.gov/timeseries/LNS14000000).

2) INTEREST RATES: Interest rates are still very low with the rate for a 30 year fixed rate mortgage hovering around 4.25%. Even with home prices creeping up, low interest rates will allow buyers to remain in the market. You can track historic interest rates and trends at the Freddie Mac website: http://www.freddiemac.com/pmms/.

3) DAYS ON MARKET: To really know your market and product, you need to track days on market numbers in different price points, different areas, and by product type. The trends in days on market numbers will show you where there are opportunities in the market. This will also help you see that a slight slowdown in days on market numbers may only be temporary.

4) LIST TO SALES PRICE RATIOS: By tracking list price to sale price ratios you are able to determine the market’s tolerance for multiple offers which is critical in being able to track the market’s speed.

5) HOUSING AFFORDABILITY INDEX: This index measures buying power. The Housing Affordability Index (HAI) is calculated by evaluating the relationship between median home prices, median family incomes, and average mortgage interest rate. The higher the index the higher the buying power. Regional home sale prices rose in 2014 causing the Housing Affordability Index to decline from 196.5 (2012) to 175.8 (2013). As of June, the National Association of REALTORS reported the HAI sat at 153.4 (composite data pending). Although buying power has decreased, it is not causing widespread changes at this point. And rising prices have actually benefited the market because it has allowed sellers who were previously underwater to be able to put their homes on the market, sell, and then buy. You can track the Housing Affordability Index at: http://www.realtor.org/topics/housing-affordability-index.

6) STOCK MARKET: Pay attention to whether the market is trending up, down, or if there is volatility. Many buyers and sellers have a substantial percentage of their assets in the stock market. When the stock market declines, buyers and sellers can get nervous and hold off on buying and selling. This is particular important to the higher-wealth individual and the luxury market.

7) “HOT” PRODUCT: To find the hot product you have to track the list to sale price ratio and the days on market to find these opportunities. For example, if the list to sale price ratio of single story homes averages 103% with an average days on market of 22 days, while two story homes are 92% with a 93 days on market number, then that would clearly indicate an opportunity in the market for single story homeowners. This can also help you to identify red flags in the market if you find a particular type of product with a very low ratio and long days on market number.

If you are looking at your market right now and want to use any lull to pack your pipeline before the year ends, it is critical to evaluate exactly where your market is and get the word out. Here is my advice:

STEP ONE: Make a list of everyone who has indicated you that they are considering buying or selling in the next 12 months. These folks need a detailed, special report from you regarding the market and the opportunities that exist right now.

For buyers, I would include:

A written one-page summary of the market which includes the market metrics above (employment, interest rates, etc.) and what it means for buyer opportunity.
If you are in a market that has seen a lot of multiple offers and you have weary buyers, address this by showing how inventory has changed.
A paragraph specifically on that buyer’s situation and what opportunities that buyer currently has in your market.
An interest rate and monthly payment chart to show how their monthly mortgage payment can change if interest rates change. Include the impact to the total repayment that can occur with a change in interest rates on their specific, anticipated mortgage amounts.
MLS printouts of example homes that may be good matches for their buying needs.
A strong call-to-action to make an appointment with you and go over the next steps ASAP.

For sellers, I would include:

A written one-page summary of the market which includes the market metrics above (employment, interest rates, etc) and what it means for seller opportunity.
If you are in a market that has seen a lot of multiple offers and you have would-be sellers who were reticent to put their homes on the market for fear they would not be able to purchase another home, discuss inventory changes and their impact for sellers.
A paragraph specifically on that seller’s situation and what opportunities that seller currently has in your market.
An interest rate and monthly payment chart to show how changes in interest rates can change the number of available buyers for their property.
MLS printouts of homes that are for sale, pending, or sold in their neighborhood that represent their competition or what can be achieved.
A strong call-to-action to make an appointment with you and go over the next steps ASAP.

STEP TWO: Create a mailer for your database and farm areas with a summary of what you are seeing in the market and what opportunities currently exist.

A special note for your current listings. Currently-listed sellers who need to sell right now need to get serious about their price (and remember, working with them to get price reductions now while the market takes a breather is your best opportunity to get some closings before year end). Sellers will be more realistic now if they have seen their showings slow down. You can use this slowdown to get your sellers prices where they need to be.

Your clients need your strong voice to understand where their investment or would-be investment is in relation to the market.

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