Real estate in your market area is affected by influences outside of your own region. For example, when I sold real estate in Portland, Oregon, what was happening in terms of inventory, appreciation, and activity in Seattle, Washington had an effect on my own marketplace. The two metropolitan areas are less than 200 miles apart, and one influences the other due to the easy and frequent population movement between the two cities.
The largest regional influence for my market, however, was California. There was a massive influx of people from California to Oregon, particularly from the bay area of San Francisco and the greater Los Angeles area. These geographic areas drove tens of thousands of people into the Portland metro area annually, increasing the demand for homes and raising values and prices as a result.
The population exodus started because the difference in price between the Portland market and the California market triggered the law of cause and effect. The appeal of Oregon’s lower real estate prices caused California residents to want to move, either to cash out of expensive California properties and apply the profits to better homes at lower prices in Oregon, or to relocate to an area where they could finally achieve first-time home ownership.
To determine how neighboring regional markets are affecting your market area, study migratory patterns and then research the reasons behind the population movements you discover.
Studying population migration patterns
To quantify population migration trends that affect the buyer and seller pool in your market area, determine the answers to these questions:
o Is your marketplace growing in population or losing population?
o Are people migrating into your area or leaving your area?
o Where are new residents coming from geographically?
o Where are current residents going when they move away?
o At what rate are people arriving or leaving your area?
o What are the economic factors that are driving population changes (i.e. jobs, unemployment, business growth) in your marketplace?
If your answers lead you to believe that a population boom is pending, prepare yourself and your clients to take advantage of a seller’s market and the positive affects of a high demand, low supply market situation.
Conversely, if your answers lead you to believe that a population exodus is beginning to take place, you can steer buyer and seller decisions with that knowledge in mind.
Identifying and capitalizing on market trends
To understand your marketplace and its economic condition, compare current market activity with correlating statistics from the previous year, using the following questions as your guide:
1. Compare number of sales and total sales volume, both on a year-to-year and on a year-to-date basis. This will help you understand and forecast trends in your marketplace.
o Is the number of sales going up or down?
o Is total sales volume going up or down?
o Is the marketplace ahead of or behind the pace of sales from the previous year?
2. Compare the number of listings taken. The available inventory in a marketplace is the supply half of the supply and demand equation.
o Is the number of listings up or down? Fewer listings indicate a sellers’ market; many listings indicate a buyers’ market. Is there more or less competition for buyers than in previous years?
o Is the selection better for buyers than last year at this time?
o Is the inventory of homes for sale growing or shrinking as compared to this time a year ago?
3. Compare last year’s average sale price to this year’s average sales price. Determine your market’s average sale price by dividing total sales revenue by the number of homes actually sold.
o Is the average sale price going up or down? If a marketplace is healthy and vibrant, the average sale price will be increasing.
o Is your marketplace appreciating or depreciating in value? For instance, if the average sale price has gone from $249,000 to $257,000, your marketplace is appreciating in value. Be aware that the average sale price must be viewed on at least a quarterly basis. A one-month change in this particular statistic a month does not indicate a sustainable trend. This is especially true in small market areas.
o How well is the inventory of homes aligned with demand? If you have an appreciating marketplace, the inventory probably is lower than the demand for homes. In a flat or depreciation marketplace, the inventory or supply probably exceeds demand at this time.
4. Compare the percentage of appreciation of average sales price this year versus last year and year to date.
o Is the appreciation percentage increasing or decreasing compared to this time last year?
o Is the marketplace gaining strength in appreciation or losing its power?
To understand your marketplace and its economic condition, create a market trends analysis by comparing current market activity with correlating statistics from the previous year.
By knowing your market and watching regional statistics, you can be prepared and proactive. Using the tactics above, you can interpret your findings in order to arrive at conclusions that can steer your business in the right direction.
Dirk Zeller is an Agent, an Investor, and the President & CEO of Real Estate Champions. His company trains more than 250,000 Agents worldwide each year through live events, online training, self-study programs, and newsletters. He’s the widely published author of Your First Year in Real Estate, The Champion Real Estate Agent, The Champion Agent Team and over 300 articles in print.