Decoding the Real Estate Market: Key Metrics to Watch To Better Understand Your Market

So you're curious about the real estate market is doing? Whether you're a seasoned investor, a first-time landlord, or simply someone keeping tabs on the local real estate scene, understanding key metrics can help paint a clear picture of what's happening in your market.

These numbers aren't just dry statistics; they're the building blocks for making smart decisions in your real estate investing endeavors.

Let's dive into five essential real estate market metrics and unlock their secrets:

1. Number of New Listings:

Think of this as the "new inventory" entering the market. A constant stream of new listings indicates seller confidence and potentially is a sign of rising prices. Conversely, a trickle of new listings might suggest a saturated market or cooling demand.

You can also look at the number of new listings from a buyers and from a sellers perspective separately.

For Buyers: 

• High New Listings: More choices and potentially less competition, offering opportunities for negotiation and a more balanced market.

• Low New Listings: Fewer options and potentially more competition, leading to bidding wars and higher prices.

For Sellers:

• High New Listings: Potential market shift towards buyer equilibrium, meaning lower selling power and potentially longer selling times.

• Low New Listings: Strong seller's market with ample buyer demand, potentially leading to quicker sales and higher selling prices.
  

2. Days on Market Until Sale:

You can think of Days on Market Until Sale (DOM) as the speedometer telling you how quickly homes are selling in a particular real estate market. It reveals the average time it takes for a listed property to move from active status to being sold or taken off the market. A quick turnaround (think days or weeks) points to a hot market with eager buyers. Longer days on market signify a potential buyer's market, where sellers might need to adjust their price or strategy.

Like many real estate market metrics, DOM is affected by seasonal trends. In many markets, DOM starts falling at the end of March, ahead of the peak buying season of April through June. You’ll often see DOM start to climb again in the winter months when fewer people are looking to buy or sell a home. This seasonality trend is also impacted by location. Different markets experience peak season at different times.

3. Median Sales Price:

This magic number tells you the middle ground of recent sales prices. It's not the average, but the price that cuts the market in half – half the homes sold for more, and half for less. This number represents the typical cost of buying a home in a particular market. A rising median price signals a seller's market, while a stagnant or falling one might favor buyers.

Median sales price can also be used when comparing one geographical market to another by providing insight into which market is more expensive and potentially better or worse for your investing strategy. It’s a good tool for locating potentially undervalued homes as well. If you find a home with a selling price under the median for that market, it could be a sign of a good deal or a home with more problems than you’re looking to take on.

4. Median List Price:

Median List Price acts as a leading indicator of market sentiment or mood. It reveals seller expectations and potential shifts in the market. A house that is listed today will usually have an offer in the next one to six months, on average, and close sometime after that. Median list price, therefore, is a barometer of sellers’ current confidence levels since the list price is based on recent sales data and represents a seller’s expectation of the best price to list his home for sale. Rising medians suggest sellers are optimistic while a declining median can signal a shift towards a more favorable market for buyers.

Understanding median list price data can help your investing decisions in a variety of ways. Two potential areas affected by median list price are seller confidence and your offer price: 

• Seller Confidence: Rising medians suggest strong seller confidence, potentially leading to tougher negotiations. Declining medians imply sellers might be more flexible.

• Offer Strategy: Use medians as a starting point for offers, considering market conditions and property specifics. In a hot market, be prepared to go above, while in a cooler market, negotiate below the median.
  

5. Inventory of Homes for Sale:

Imagine this as the supermarket shelves for houses. A well-stocked market offers buyers plenty of options, while a bare-bones selection can lead to bidding wars and higher prices. Keeping an eye on inventory levels can help you gauge competition and adjust your expectations for the market. 

Rising inventory typically favors buyers, while tightening inventory favors sellers. Seasonality has an effect on these trends and at times you may see inventory increase and prices move up simultaneously, such as in the peak buying season. 

6. Months Supply of Inventory:

This metric takes the current inventory and divides it by the average monthly sales rate. It essentially tells you how long it would take to sell off all the available homes at the current pace. A low number (think less than 3 months) suggests a fast-moving market, while a high number might indicate a buyer's advantage.

Remember: These metrics are just pieces of the puzzle and are most effective when analyzed in conjunction with each other. Local factors, economic trends, and seasonal variations can influence the overall story the data is telling. By tracking these metrics over time and understanding their contribution to the whole market analysis, you can gain valuable insights that lead to better investment decisions.

Bonus Tip: Don't rely on these metrics alone. Talk to local real estate agents, other investors and attend local real estate meetings to get a more clear understanding of the market you’re interested in. Real estate is a people business, and a little boots-on-the-ground research can go a long way. By studying your market and understanding these metrics, you can confidently decode the real estate market’s secrets.

Look out for the monthly real estate data we post online each month and use this guide to become a market expert!