When will YOUR housing market recover?
Pundits love to make predictions as to when home prices will stabilize in U.S. housing markets. But even well-respected forecasters and analysts may disagree, and even if a forecast proves true nationally, your local market may behave in a wildly different way. This disconnect between broad-stroke forecasts and small-scale local markets presents quite a puzzle for homebuyers and home sellers, who need to make major financial decisions on the basis of facts, not fiction. If you want or need to sell your home, how do you know the best time to put it on the market?
The national housing market is more than large enough to encompass a wide variety of trends in different places and on different timelines. And that means, at the end of the day, you’ll need to rely on your own best judgment to make decisions for yourself and your family.
Local data may be more meaningful for homebuyers, sellers
So how can you figure out when home prices and sales hit bottom and begin to recover in your neighborhood? You may need to do your own research to find the answer. Dig up facts and figures about your own city or town and then combine that data with information about national trends to formulate your own conclusions.
Plenty of data are as close as your keyboard, though the process of sifting through it may take quite a lot of time and thoughtful analysis. If you’re tempted to skip out on what may seem like a burdensome homework assignment and instead rely on your own gut instincts, you might want to take a tip from Stuart Gabriel, director of UCLA’s Ziman Center for Real Estate in Los Angeles. He says, “some investors are very instinctual and this has worked out well for them, but most of us rely on the acquisition of information.”
Get your data straight from the original source
For starters, here’s an overview of some of the data and the organizations and agencies that collect and disseminate it:
Supply of for-sale homes a key indicator
If you don’t want to indulge in that much research, zero in on the most important statistic, which, Gabriel suggests, may be the supply, or “inventory,” of homes that are for sale in your local area.
“There is a whole litany (of factors that affect housing) — home sales, housing starts, building permits, house prices — and all of those are important indicators,” he says, “but the inventory numbers in particular are really important.”
The general rule is that more months of supply indicates a weaker housing market. Many months suggests plenty of homes are for sale or the pace of sales is slow. Those conditions are indicative of a market that favors buyers. Few months suggests a limited number of homes for sale or the pace of sales is fast. Those factors are indicative of a market that favors sellers.
Many local Realtor associations and multiple listing services, or MLS, collect and publish this type of information. Ideally, the data should be segmented by locale, type of home and price range, though that degree of specificity is rarely on offer.
Housing starts increase supply of for-sale homes
Two other important housing market indicators are residential building permits and new-home construction starts, according to Gabriel. Bernard Markstein, senior economist at the National Association of Home Builders, or NAHB, in Washington, D.C., agrees. These indicators are measured by local government building officials and the U.S. Census Bureau. A spike in permits or starts may indicate more optimism among homebuilders, but can also suggest a dramatic rise in the supply of for-sale homes in the near future.Housing starts generally are a better leading indicator than housing permits because “housing starts turn into homes for sale very quickly,” Gabriel says.
The NAHB’s Web site offers access to a wealth of forecasts and economic and housing data from the association and government agencies.
Markstein also cites local employment trends and unemployment rates as important indicators of local housing market conditions.
“Employment is important because ultimately people need a place to live, and if people are moving into an area because employment is expanding, that will be positive for homeowners,” he says.
Most local newspapers publish stories about large employers’ hiring and downsizing plans as well as unemployment figures. Employment data also can be obtained from the Bureau of Labor Statistics.
Homebuyers and sellers can also glean useful insights from reports and newsletters published by the Federal Reserve and its 12 district banks, Markstein suggests. Each of the banks puts out its own periodicals about local economic conditions, and these reports usually contain sections about the outlook for commercial and residential real estate. The Fed’s Beige Book and map of the district banks may help you locate these reports.
Quality of data is crucial to good analysis
Much like do-it-yourself remodeling, personal economic analysis is not without certain pitfalls.
- Inaccurate, incomplete, faulty or outdated data, which may be misleading.
- Small-scale surveys, which may suffer from sampling errors.
- Individual data points, which may not represent a true trend line.
It’s important to track inventory, starts, unemployment and other figures over time and compare them to historical highs, lows and averages to understand their importance, Gabriel suggests.
“Look at these numbers relative to the typical level that would exist in a period of economic growth to see whether the levels are aberrantly high or aberrantly low. Look over a long time frame and measure existing levels relative to, say, a long-run average to get a sense of where (the market) is in the cycle,” he says.
And remember: In housing markets, “a long time frame” usually means a number of years, not just a few months.