To find out what’s going on in a market, agents use these five indicators.
How is the market? This is a question real estate professionals get asked on a daily basis. However, unlike the stock market, which is reported daily in the national news, real estate is hyperlocal. Thus, it’s not reported on daily. For an inexperienced real estate agent, it’s easy to answer this question based on how their business is doing. A true real estate professional, though, bases their answer (and predicts demand in pricing) on five key indicators:
1. Volume of active listings. As this volume decreases, prices increase because there is more demand and not enough inventory. We saw this during the spring of 2020 once the pandemic hit and impacted most sellers’ plans.
2. Median sales price. The median sales price usually trends in the opposite direction of the volume of active listings: If the volume of active listings is down, the median sales price is rising because there isn’t enough inventory.
3. Time on market. This is an indicator of how much demand exists. If a listing’s time on the market is low, it means demand is high.
4. Ratio of active-to-pending listings. As this ratio narrows, demand increases. When the number of active listings equals the number of pending listings, there is good demand. When the number of pending listings exceeds active listings, then you know you’re in a red-hot market and prices are going up.
5. Sales price versus list price. If the average sales price matches the average list price, it means demand is up. If there is a lot of volume, activity, and inventory, but demand is low, the average sales price is probably lower than the average list price. If there are fewer listings on the market, demand will increase, and you’ll see prices being bid up and multiple-offer situations become more common. Therefore, the average sales price and the average list price will match.
In our current market, we sometimes see a home’s sale price surpass its list price. However, in our local and national markets, lending policies and appraisal practices are conservative and holding back prices. Even though a buyer may want to buy a house above its list price, the lender and appraiser will hold back the appraised value, so the buyer may not qualify to buy that house. Keep this in mind if you’re a buyer, and always seek the advice of a real estate professional.
If you have any real estate questions or are thinking of buying or selling a home, simply reply to the email that led you to this blog or give me a call. I’d be happy to help you however I can!