Real Estate Indicators:
Market Conditions Dictate Highest and Best Market Strategies
Watch Casey discuss this topic on Coffee with Casey below:
Real estate markets are driven by Cause and Effect.
Cause: Inventory and Interest Rates cause markets to go up and down.
Effect: The Success Rate and Pricing Models show evidence of the effect.
The Success Rate and Pricing models measure market results.
Inventory:
How many homes are listed in the market during the latest 30-day, and 90-day periods and compared to the same period each year over a 10-year period.
Lack of inventory drives prices up.
Heavy inventory drives prices down.
30 days puts your finger on the pulse
90 day indicator is a trend
Interest Rates:
Inflation, health of the economy and Fed policy drive interest rates.
When markets and inflation heat up, interest rates go up to cool the economy.
High interest rates drive mortgage payments up and values down and slows the economy.
When markets and inflation cool down, Interest rates go down to stimulate the economy.
Lower interest rates drive down mortgage payments, stimulating sales and moving prices back up.
Success Rate:
The success rate is the measurement by taking pending sales and dived by total homes competing in the market. If 10 homes are listed and 5 are pending without contingencies, the Success Rate is 50%
Success rate is calculated by market, defined as a geographical search area. Markets are future defined by price ranges.
The Success Rate is critical in determining who has control of the market:
· Under 40% means the Buyers have control of the market
· 40%-60% means the market is neural and no one has control
· Over 60% means the Sellers are in control.
The success rate is critical in determining how aggressive you can be with pricing.
Pricing appreciation:
Pricing is critical to understanding how much homes have appreciated over a defined period. Comparing the appreciation rate vs Value Based on Inflation tells whether homes are overpriced or underpriced.
Sometimes there are very few current comps so using the appreciation rate can help determine value.
Example:
We had a home without a comp since 2022. In 2020, three homes sold, and the value was easy to determine: $1.3M
Homes in that market area appreciated 62% since 2020 so we determined that 150% of the 2020 value, or $1.95M was a conservative place to start. If buyers are will to pay more, and we fell they may, it will come out in the contract bidding.
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