Understanding what a real-estate market is trending toward is vital, as it can help sellers establish what price they want to aim for, while buyers can better determine exactly how much they should spend on a property, especially if the market is looking to be getting hot.
So what kinds of signs should you look for, especially when it comes to a local market? Is it better to focus on how many offers are being made on a property, or should you look at the scale of construction — as well as what types of buildings are being made.
To help, seven members of Forbes Real Estate Council, below, share the key signs they look for to tell whether or not a real estate market is heating up. Here’s what they recommend you watch for:
1. Days On Market
If the pace of days on market increases in certain zip codes or submarkets, it typically is a leading indicator that prices will follow, as investors and buyers feel they have to make quicker decisions for fear of someone else acquiring the property. - B.J. Turner, Dunleer
2. Overpriced Properties
When properties sell at such a premium without logically comparing to prior sales transactions and average household income affordability in that market, that is sign of market heating. The new pricing suggests demographic shifts (i.e. higher incomes) and economic drivers (i.e. urban revitalization or job growth) are at work to push property prices. - Babak Ziai, BrandView Capital Partners
3. Supply And Selling Speed
We watch for two key indicators when evaluating the health of a local housing market. The first indicator is the supply of inventory in the marketplace. When a market starts to heat up, the supply of well-located and appropriately priced homes vanishes. This leads directly into the second key indicator, which is when a listing goes under contract within days of hitting the MLS. Both indicators are valued tools in allowing us to evaluate how fast we must make thoughtful and strategic purchasing decisions. - Matt Pettinelli, CapGrow Partners LLC
4. Number Of Offers
A clear sign is the number of offers in for comparable projects in the respective submarket you are tracking. This simple barometer illustrates the depth of the buyer pool and demand within that neighborhood. High demand usually leads to increased seller pricing power. - Owen Fileti, L.A. Realty Partners
5. Inventory Size
Inventory is the strongest local indicator, in my opinion. That, crunched against the number of properties going pending each week, will give you a clear idea if the supply side of the equation is headed down or up. And that is massively correlative to the market direction. Secondarily, I also look at local job creation numbers. That is the demand side of the equation, and can also impact the market. - Keith Robinson, NextHome
6. Property Development Pace
This is mostly applicable for commercial real estate markets, but when development of skyscrapers is booming, that's usually the beginning of the end. Most development funding is approved when times are good. By the time all the projects are completed, the market typically softens. This new glut of vacant space causes landlords to slash rents. So begins the inevitable commercial real estate downcycle. Then, when all the cranes have gone back into hibernation, is precisely the time to go shopping for office, warehouse and retail properties. - Brad Johnson, Evergreen
Read more in Five Steps To Surviving The So-Called 'Retail Apocalypse'
7. Sold Units Versus New Listings
I always look at the sold units versus new listings ratio. As soon as the trend goes toward an increase in units being sold and/or decrease in new units coming on the market, I know the market is heating up. This is one of the best early indicators and crucial signs of a local market taking off. It's the good old proven law of supply and demand. - John Reza Parsiani, Cervera Real Estate
