5 Signs that Indicate Strength of a Housing Market

5 Signs that Indicate Strength of a Housing Market

Signs that show strength of the housing market

It’s life. The only thing sure here is uncertainty. When we talk about real estate, we discuss the location. Location is everything. Real estate is a numbers game, and timing is essential. Spring is the best season for buying a property and the winter season is the worst for purchase.

In this article, we’ll discuss critical signs that indicate the health/strength of a market. By reading those metrics, we can predict the future of the market with optimal accuracy. It is not a guarantee, but more of an educated guess so we can make the right decisions.

Robert Campbell, wrote his book, “timing the real estate” where he discusses the top 5 signs regarding the health of a housing market:

  1. Current home sales
  2. Number of new building permits
  3. Default notices/homes in the pre-foreclosure phase
  4. Foreclosure activity
  5. Mortgage interest rate

In this list, we don’t talk about the location or our timing. Experienced investors will tell you that timing is never right. You have to make the best decision based on the near history and current status.

Existing Home Sales Data

In a healthy market, we have housing inventory worth at least six months. We see a steady sale of homes each month. You can use this factor to see the performance of real estate assets. You can get the sales data from local realtor associations. If you see an upward trend in the number of sales, that’s a good sign.

Another thing to notice is the “average days on the market”. In a favorable market, houses don’t keep sitting on the market. Average days on the market should be less if not minimum compared to the historical average in a given area.

Number of New Building Permits

Builders don’t create new houses when home prices are at an all-time low. Investors don’t invest money. That means they don’t yet have trust in the market. Read these two signs. If you see an increase in home sales but you don’t see the issuance of building permits, the situation is conflicting. That means, soon the market will experience a lack of inventory which will push the prices resulting in reduced sales.

Default Notices

A lender can issue a notice of default when the borrower misses two mortgage payments. Receiving the default notice is not a guarantee of the foreclosure. However, it indicates the market situations. Some of the default notices will result in foreclosure which suggests the market is not headed in the right direction.

There are reasons a homeowner ends in foreclosure. These reasons can be unemployment, underwater properties, and an unaffordable mortgage.

Foreclosure Activity in the City

Lack of foreclosures is a positive sign. That means more people can afford their houses. It also means that prices will slowly increase and will continue to rise untill we surpass the market average.

Interest Rate

Rising interest rates are a sign of a healthy market. That means, the investment sector is generating a profit and the capital is being invested. However, at the same time, an increase in mortgage rates creates difficulties for the homebuyer. A percentage increase in interest rate makes it challenging for homebuyers to purchase a property. They find it challenging to finance the house.

Because of steady increases, people lock the interest rates by securing a mortgage. That’s how home sales data expands, and prices increase again.

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