Recently I have noticed that more and more local, Puget Sound area agents are contacting me wondering if our market is correcting. When asked why, they say they are listening to the news and media, other agents, and even their clients talking about the next bubble or crash.
For any agents who have been selling real estate for more than 10 years and who were licensed when the market corrected in the past, it is understandable there is a level of fear that comes with hearing that conditions could change.
However, the problem with the real estate market is that it does fluctuate – it is completely natural. The stock market fluctuates, interest rates fluctuate, supply and demand fluctuates. Those natural fluctuations can feel very much like a market correction if you listen to the hype instead of focusing on the facts.
There are usually signs and signals that will indicate an impending crash or bubble.
The punchline – I don’t see an impending crash or bubble. I see natural fluctuations at this point and this natural fluctuation provides opportunities for both sides.
So you have the tools to evaluate your market, here are the top seven things I look at to determine the true state of your local market:
- New Construction
New construction is a great barometer for the health of a real estate market. Look in your area and determine the new construction permits and completions and starts. Without a healthy new construction market home prices must go up because there simply isn’t enough inventory.
- Days on Market
It is important to watch the trends in days on market numbers but not panic every time that number goes up. It could just be a natural seasonal fluctuation. Compare last months or last year’s days on market number and you will easily be able to spot the trends.
- Listing Inventory
Just because inventory goes up does not mean the market is significantly changing. Especially in areas where inventory has been low, it could simply be another sign of a natural season fluctuation. If the listings continue to climb and pendings fall then you have something solid to base your concern on, but rarely does this happen suddenly. Tracking these numbers on an ongoing basis is critical for being able to spot trends.
- Pending Inventory
Pending sales show the “moment” of the market and this is one of the most important numbers to track. Pendings do fluctuate but you need to track pendings using comparable time periods and similar areas or product type.
- List to Sale Price Ratios
This number clearly shows what people are paying for property and you can easily spot an aggressive “auction” type market when you track this number.
- Comparable Periods
To look for signs of what the market is doing don’t forget to compare previous months and years to get a clear idea of where the market has been and look for the clues that show you where it is going.
- Population Growth and the Economy
Is your economy shrinking or growing? If the economy is growing, the population in your area is likely growing. That is going to put pressure on housing demand. Markets stay strong where there is demand for housing due to population growth and a strong economic climate.
Please don’t mistake a natural market fluctuation with the sky falling. Remember, the media’s job is to get media attention. Sensational headlines don’t usually tell the whole story. Stick to the facts and evaluate your market with reason and sensibility.