Lessons from the Pros

Real Estate

Timing the Market with Real Estate Indicators

We all know the age-old sayings of “You make money in real estate when you buy,” and, “buy low sell high.” These sayings make sense to all of us but the question is, do you know how to do it? The answer is, knowing how to find “off market” properties and timing the market.

This article will focus on market timing. Timing the market starts with understanding the indicators. Let’s take a look at a few indicators and explore what they can tell us.

Free WorkshopDays on the Market: This is a measurement of how long (how many days) a property has been active on the market i.e.: listed on the MLS. When a property has a large number of Days on the Market, the property will command a lower price than a property that has been on the market with fewer days. DOM (the acronym commonly used for Days on Market) is used as a gauge of the strength of the market.

Existing Home Sales: This is data that measures sales and prices of existing single-family homes for the nation overall. They break down this data for the West, Midwest, South and Northeast regions of the country. This data also includes condos and co-op’s.

Existing Home Sales Data update – As of the last reporting date, January 23 (which is reporting December sales) prices are up 2.4 percent nationwide. It is remarkable that we saw this even at the slowest time of the year.

Market Timing for Real Estate Percent Change of Sales by Region

Housing Affordability Index: Measures the degree to which a “typical” family can afford the average monthly mortgage payment.

A value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on the median-priced home. An index above 100 signifies that a family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. For example, a composite housing affordability index (COMPHAI) of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan covering 80% of a median-priced existing single-family home. An increase in the COMPHAI then shows that this family is more able to afford the median priced home. This index is calculated as a composite of fixed and adjustable rate mortgages (as defined by FRED).

Market Timing via Housing Affordability Index

S&P/Case-Shiller Home Price Indices – The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate nationally as well as in 20 individual metropolitan regions.

Below is an example of the Index. Dated January 27th, 2015, this chart shows the index levels for the U.S. National, 10-City and 20-City Composite Indices. As of November 2014, average home prices for the MSAs within the 10-City and 20-City Composites are back to their autumn 2004 levels. Measured from their June/July 2006 peaks, the peak-to-current decline for both Composites is approximately 16-17%. The recovery from the March 2012 lows is 28.2% and 29% for the 10-City and 20-City Composites.

(S&P Dow Jones Indices Press Release)

Marketing timing with S&P Case-Shiller Home Price Indices

There are several other indexes we use to time the markets. In our Real Estate classes, timing the market is one of our main focuses.

Great Fortune,

Diana Hill



DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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