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Apr
25

How to Predict Real Estate Prices in Short Term

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The real estate purchase and investment decision process involves many complex, dynamic, and uncertain elements.

Because of the uniqueness of many properties and local nature of the market, real estate prices and trends are more difficult to predict compared with stocks, bonds and other financial assets.

In this post we are outlining factors, which can be observed to predict the trend in the market and also get to know how to predict real estate prices.

Despite local real estate market is made up of heterogeneous properties, general price trends show a number of consistent and systematic relationships with various market transaction statistics.

Following statistics serve as a leading indicator for real estate price in the short term, by observing the over a period of time, you will be able to generally forecast both the direction and magnitude of housing / real estate price changes up to one year in the future:

  1. Time on the market
  2. Percent of asking price achieved – Discount offered by builders
  3. Percentage of Inventory sold
  4. Remaining inventory in months

Sales Volume:

The number of sales within a given area per period shows whether demand is increasing or decreasing. In this respect, real estate is no different from other markets whereby sales volume precedes price movements. This is probably one of the most useful leading indicators of real estate price trends.

Time on the market:

The mean number of days-on-market of properties actually sold measured monthly, quarterly, or annually within an area is a strong inverse indicator of the real estate market price trends. As the mean number of days-on-market of sold properties declines, prices tend to increase.

Percentage of asking price achieved:

The mean selling price over listing /asking price statistics tends to lead market price trends. In a strong market it is not uncommon to see properties selling for more than the asking price as buyers outbid each other. When this ratio is on the higher end, it is a reliable indicator that prices are close to peaking out, while at the low end, they are bottoming.

Percentage of inventory sold:

The number of apartments that sell as a percentage of the total number available in the market in a given month, quarter or year is another useful measure of market trends. In a stronger markets, the percentage of listings sold increases, as should price. In soft markets, the percentage of listings sold declines.

Remaining inventory in months:

The ratio of available inventory to the current sales rate is known as the inventory remaining ratio. This can be calculated by dividing the existing number of listings in an area by the most recent monthly sales rate. Months remaining is an excellent real estate market indicators, because it combines both supply (inventory for sales) and demand ( sales rate) in one indicator. As the months-of-remaining inventory declines, the price tends to increase, and vice-versa.

This indicator works well in for the local as well as for the national market.

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Category : Flatons Advisors Blog

 

 

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