5 Ways to Get a Better Read on a Local Real Estate Market

by | dolinsksite.ru

As you’ve certainly heard before, you make your money in real estate when you buy. If you pay too much, you’ll have a hard time generating a return. If you get a good deal, you have a chance to make a huge profit. But how do you consistently get good deals when each geographical market is so unique?

5 Tips and Techniques for Valuing a Local Real Estate Market

Real estate is unique in that no two pieces are ever exactly the same. While people make broad statements about the housing market in the United States, the fact of the matter is that no two states, counties, cities, or neighborhoods have the exact same valuation. Sure, the marketplace often has a broad trajectory that’s either positive, negative, or stagnant, but you can’t assume that every geographical location is responding the same to larger factors.

Each individual city—and each individual neighborhood or city block, for that matter – essentially acts as its own ecosystem with different valuations and buyer/seller activity. As you look for ways to valuate local real estate markets, it’s helpful if you zero in on a few factors through which you can filter the overall health of the market. Here are five particular examples.

1. Case-Shiller Indices

Are you familiar with the Case-Shiller indices? Developed by Karl Case and Robert Shiller, these indices show the trend of home valuations over time and where things stand on a continuous basis.

Related: 5 Risks of Buying Rental Properties in Declining Markets

“There are multiple Case-Shiller home price indices: a national home price index, a 20-city composite index, a 10-city composite index and twenty individual metro area indices,” explains Susan Green, a senior market strategist for RJO Futures. “These indices are calculated monthly by Standard and Poor, with data points calculated for the time period of January 1987 through today.”

2. Transactional Volume

In healthy markets, inventory is always moving. You can tell a lot about the health of an individual real estate market by tracking the transactional volume of homes (or whatever type of real estate you invest in) over the last four to eight weeks.

3. Average Time on Market

Another important thing to look at is the average time on market for listings. Are homes sitting for 24 hours before going under contract, or are they sitting for three months? Clearly, the faster real estate sells, the more demand there is. The longer it sits, the more likely it is that demand is low and prices will be driven down.

4. Asking Price

You can learn a lot about a specific market by studying current prices and comparing them to past pricing trends.

“Acquire an accurate and firsthand knowledge about the current price trends and compare them with the price trends of the past,” real estate expert Mikkie Mills suggests. “This will help you analyze the growth and expansion of the market in the recent decades and enable you to make an accurate forecast of the future.”

housing-market

Related: How the “Second Wave of Suburbanization” Will Change Housing Markets as We Know Them

5. Common Sense

Finally, you have to throw some common sense into the equation. There are certain aspects that data can’t account for – including pending growth or decline. For example, if you know that a major company is about to build a massive factory that will employ 5,000 people over the next three years, this is clearly a sign that real estate will become more scarce (and more valuable). On the other hand, if a factory is planning to shut down in the next three years, an adverse impact is likely to be felt.

Gather as Much Information as Possible

A savvy real estate investor never buys a building or piece of property without first gathering as much information as possible. As you analyze different individual real estate markets, make sure you’re filtering your valuations through pertinent factors like the five highlighted in this article. It’ll take some time, but you’ll be glad you did.

Anything you’d add to this list?

Comment below!

About Author

Larry Alton

Larry Alton is a professional blogger, writer and researcher who contributes to online media outlets and news sources. A graduate of Des Moines University, he still lives in Iowa as a full-time freelance writer and avid news hound. In addition to journalism, technical writing and in-depth research, he’s also active in his community and spends weekends volunteering with a local non-profit literacy organization and rock climbing.

4 Comments

  1. Rob Cook

    I think the most useful point made was, use “Common Sense.” It is very easy to get lulled into believing reports and studies and articles and blog posts, and falling prey to confirmation bias. We all buy emotionally, and then rationalize the purchase, logically. Equally risky and damaging, is a blind faith in simple numeric analysis. It is easy to fool yourself into believing a deal is a good one, because the pro-forma numeric analysis says it will be. OR the opposite, almost as damaging, blindly and mindlessly applying the numerical analysis and ruling out a potential investment which looks bad by the numbers, but may actually be an exceptional deal and opportunity. I guess it would be worse to buy into a bad deal than to miss out on a good one, due to reliance on numerical analysis. But both are still errors. Sometimes, we just have to go with our gut feelings, assuming those feelings are based on good info and adequate experience and skills. And finally, whether a particular potential investment property is a bad or a good deal, is often subjective and relative to the individual investor’s own goals and tastes. Knowing yourself, your goals, your needs and capabilities as well as the basic numerical analysis skills and the market, are ALL important and essential to long term success in real estate investing.

    I like to treat a possible deal, like a game. It is not just a one-time decision, or threshold, such as a decision to purchase it. Rather, it is a continuous involvement and commitment, and one that will evolve over time. “Try it on” in your mind, “As-If” you already owned it, and were managing it. “Walk around” the property inside and out in your mind, or in fact, as if you owned it. Walk around the neighborhood. Look at the property from different viewpoints and perspectives, up and down the street, from the alley behind and from across the street in front. “Feel” it, what it would be like living there, or owning it as a landlord. Yes, apply the numeric analysis, that cannot be ignored, but also don’t ignore the non-numeric considerations. If it fits and pencils out, and feels right, and you cannot find any good reasons NOT to own it, then go for it. If not, pass and go find another.

  2. First the author says to look at specific markets which I agree with. Then he says to use Case-Shiller as a gauge. Case-Shiller is not a useful index in most metro areas for this very reason. There are two many micro-markets and the Index combines them all into one number. The problem is they are looking at the median sale price and since turnover is much higher in the low end markets, it is skewed toward those markets. You simply can’t take an average of all sales in a large market like LA and expect it to reflect prices in the higher end areas. It doesn’t. It’s a BS metric and completely useless for that market. According to Case-Shiller prices dropped 50% in the Bay Area after the 2008 crash and are only now recovering. The reality is my house doubled between 2007 and 2014. So clearly Case=Shiller is not something that is useful at all if you are not in the lower end of the market.

    • chris gibbs

      I use finestexpert.com for a first guess on what rent should be. Trulia for crime maps. My city of Portland has a public records website called portlandmaps.com you may have one for your city as well. Otherwise just try typing in a question and your city and see what pops up.

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