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Knowing Exactly When the Market Will Change

How would you like to know when the real estate market has hit the bottom and prices can be expected to appreciate again? Wouldn't that knowledge be worth a great deal? Well, believe it or not, I can tell you when that will happen. And if you want, I will share my knowledge with you.

You see, it's actually not all that difficult to forecast. The reason for our current depreciating real estate market is simply that more homes are coming ON the market than are going OFF the market. About 19 months ago in the area I sell real estate (the Massachusetts North Shore), for the first time in more than 10 years, more homes came on the market than sold. And this trend then continued for the next three months. That was the beginning of the decline in home values on the North Shore and we quickly went from a Seller's Market to a Buyer's Market. The trend continues today with 404 new (single family) listings coming to market in January on the North Shore (22 towns) and only 209 properties going Under Contract.

So . . . Still want to know when prices will begin appreciating again? Quite simply, when we have three consecutive months when more homes are selling than are coming on the market the trend will have reversed and you can expect the return of an appreciating (Seller's) market.

I carefully track the inventory data every month so that I will know and be ready for the shift. If you would like to be ready as well, feel free to contact me. I am pleased to share the data and with it the knowledge of when the market will change.

Regards,

Jay Burnham, VP
Coldwell Banker Residential Brokerage

Posted by Jay Burnham - The Coldwell Banker Guy on 02/21/2007 10:41 AM

Comments (20)

market change, appreciating market, depreciating market, buyers, sellers, home sales, massachusetts, north shore, coldwell banker

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20 Comments on Knowing Exactly When the Market Will Change

FEB

2007

Jay I don't believe I've seen you on here before. Welcome! Your post makes sense and I know that there's been a flood of homes for sale in my area. It will be interesting to see what other comments come in. Thanks for the post and congrats on getting a Gold Star.

Jay,

A very simplistic idea! Would you say, in the spring, when homes traditionally create a new flurry on the market, the data will push back the slight off the market trend (1 month) that has been happening here in RI?

If so, then the spring market should give us all a good view of the rest of the year. (If we have an abundance of sales, or rather, the oversupply forces down prices)

Nice post! Eye catching title.

This seems to happen every where but in my town! In Florence SC its barely A buyers market, house avg. 45 days on the market.

While I agree with the tell tale signs of when the market will shift, I have to ask what will eventually cause this shift?

In my area, Hilton Head Island/Bluffton, SC, the prices of homes have experienced huge (26%) increases over the past four to five years. While some may call it a "bubble" I think this coastal market can bare the increase for single family/primary homes and will recover at a faster rate then other parts of the country given the influx of the baby boomers and the equity of the homes they bring with them when they sell else where. What struggles I do see are in the rental/investment income in our market. The villa/condo prices have increased and are continuing to increase at the same and higher rates of SFHs. What has slowed this market is the simple fact that the rents and cashflow of these units has not kept pace with market value. Until local wages increase and additional sources of employment and growth occur the market will stay stagnant. While many people relocate to the area in stages (first buying a rental which they will also use as a vacation home) and will still buy rental property/vacation home and then eventually upgrade to a full time resident, the typical investor is avoiding buying rental properties untill the rental cashflow improves.

So, with that said, I do understand your formula for noticing the shift. I'm more curious of what will stimulate the shift rather than the shift itself. It will happen and when it does I want to be ready before or during the shift rather then after.

Jay, It is wonderful seeing you in the Rain! I am so glad that I invited you!

I am too busy with contracts to know whether the market is changing. :-)

Congratulations on a well deserved featured post!!

My best to you and Linda.

I think that down here in South Florida there is still so much panic - plus with the combination of poor mortgage counselling, people are being forced out which is taking its toll on the market.

Basic supply and demand. The visual really helps make the point.

I'm interested in how you draw the conclusion that three months of a change in ratio of new listing vs. pending listings is in itself enough of a barometer to determine the change in market. I am not saying that I disagree with your analysis, only that I would like to see some historical data to reflect this over the long haul. I generally do something similar to this for my CMA for a seller and feel like three months is a solid period of time.

Hello Cynthia,

Thank you for your kind words. Keep selling those houses and bring the inventory down!

Regards,

Jay

Dear Karen (Hurst)

No, I do not think that will make a difference because just as the buyers believe the "Spring Market" opens things up for them, so do the sellers. So expect even more inventory which means that sellers are competing with more properties and buyers, seeing more inventory that ever before, continue to control the market.

Regards,

Jay

"So, with that said, I do understand your formula for noticing the shift. I'm more curious of what will stimulate the shift rather than the shift itself. It will happen and when it does I want to be ready before or during the shift rather then after."

Dear Stacey,

That answer I do not have except to say it will be somewhat like what happened 19 months ago to cause the shift in the first place...the market simply could not sustain the level of appreciation over such an extended period of time. Home values went up for 10 years at levels that far out-paced the economy in general, so it had to end.

Perhaps something similar, in reverse, will cause the next shift. But at least we'll know it when we see it.

Regards,

Jay

Reply to,"Jay, It is wonderful seeing you in the Rain!" from Margaret Rome.

Hi Margaret,

Glad to hear things are good for you. We miss you a lot and think of you and Lee often.

Please give him our best.

Your friend,

Jay

Reply to, "I'm interested in how you draw the conclusion..." from Ryan Ward.

Hi Ryan,

I draw the conclusion from past data. Over the past 19 months we had had months where more inventory has gone off than has come on. What we have not had is three such consecutive months. Three consecutive months indicates a trend which is what I base my conclusion upon. It's really a form of supply and demand (it's as simple as that) and the only thing that needs watching is the length of time.

Thanks for your reply,

Jay

Jay- Welcome...If you are right... and I think you are then my market .. Southern CA.. Manhattan Beach is again moving upward ..Inventory has gone down 50% since Nov 1., 2006 and it is not currently increasing ... proprety that sat for months is selling.. unless something drastic changes the market in the next two months we will no doubt see prices rising and multiple offers again..

Reply to: Kaye Thomas

Dear Kaye,

That's GREAT news! . . . except for us in New England . . . since we've always been running about 2 years behind you California shakers and movers and trend setters!

Congrats,

Jay

In my small market we are sitting on a dead, stagnant inventory. The buyers are starting to stir, but the sellers are sitting out and refusing to participate in the 'buyer's market'. Hopefully they will soon come out and play as spring stirs them.

Ozarks Joan

Numbers, Numbers, Numbers

You must know the numbers. All nubers. Sales, Expenses, inventory, traffic, conversion etc. Learn how to convert volume into business.

Go Sell Something

FEB

2007

Nice blog with a great touch of common sense insight. Weren't you my economics professor:-)

Jay,

Great getting folks to look at numbers...numbers tell us a lot.

One thing I didnt' see is the inventory of new homes for sale...they don't show up in listing data...or at least not all. With builders flooding the market in many areas with lot's of units and big (albeit illegal) incentives...it could be awhile.

Good topic

RKB

AUG

2008

Hello Jay,

First time on your page. Interesting analysis. I am stuck with a hard decision and I wanted your opinion:

We live in California and purchased our home last yr for $520,000. With the change of market value, the it has dropped almost $100,00. Our lenders are willing to work with us and do a modification but we will still be paying a higher loan amount than what the house is valued? Do you think its wise to way it out and do a 5 yr fix loan ( which is what our lender is offering) in hope that within those 5 yrs the market might changes for the better? or do you think it would be better just to get out of our loan ( short -sale) and try again in a few years?

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