How to Follow Real Estate Market Trends Like a Pro
Home prices change constantly. Sometimes, market conditions are more favorable for buyers, giving them more bargaining power. But circumstances can shift quickly, giving sellers the edge.
So, if you’re interested in buying a home, it’s essential to have a pulse on current conditions so you can submit a competitive offer without paying too much. A buyer’s agent can coach you on market trends and negotiating strategies, but it’s also helpful to learn about their techniques.
Like every competitive marketplace, real estate prices are based on supply and demand. On the supply side, the number of properties currently listed for sale is typically called the “inventory.”
The demand side of the equation reflects how many buyers are actively seeking homes. In addition, economic factors like job security and mortgage interest rates can have a significant impact on buyer demand.
Each local real estate market faces unique market conditions, and you might find different supply and demand factors at various price points within a single zip code.
So, how do real estate professionals monitor their local market? Agents rely on different techniques, but here are three of the most common questions they ask:
1. Are prices stable, rising, or falling?
To determine price trends, agents look at the median sales price for comparable homes over the past 30, 60, 90 days, or more. For the most accurate analysis, limiting the properties to truly comparable homes is essential—sales that occurred in the same price range with similar characteristics and within a mile of each other.
Of course, finding enough comparable sales to accurately identify price trends in some markets, like rural or luxury properties, might be challenging.
2. How fast are properties selling?
Agents call this factor sales velocity or “days on market.” It measures the time before a new, active listing goes under contract—or is removed from the multiple listing service (MLS).
When properties are selling quickly, it’s considered a seller’s market. Also, sellers often use days on market to make price adjustments.
For example, if the average days on market is 20, the owner of a home that’s been listed for a month or more probably needs to reduce their price to entice buyers.
3. How long will it take to sell the current inventory?
Real estate professionals call this the absorption rate. It’s calculated by taking the number of competing properties on the market and dividing it by the number of competitive properties sold per month.
For example, if 10 homes are sold each month, and there are 50 homes for sale, the absorption rate is five months.
How do you interpret an absorption rate? The general rules are:
1 to 3 months = seller’s market conditions
4 to 6 months = balanced market conditions
7+ months = buyer’s market conditions
Agents may track additional data, too, including:
- The percentage of list price received for recent sales
- Pending sales versus listings
- The range of listings that are selling, sitting on the market, and expiring
- The number of closed sales compared to previous months
There are numerous factors to consider, and collecting and crunching the best numbers can be challenging. But that’s one reason, among many others, that an Accredited Buyer’s Representative can be an essential resource when you’re ready to buy a home.