Real estate consumers emerge as the
victors in the latest array of real
estate bubble headlines. The focus of
the media reveals a wide set of
information and opinions about real
estate markets and practices to the
individual property owner and investor.
There are several tell-tale indications
that hint at the underlying conditions
of the real estate market. Real estate
professionals may not make explicit
mention of them, but the clues do not
lie.
Different forms of incentive schemes are
being offered by developers on newly
construction buildings or homes. The
vast existence of such incentive schemes
beacons a high inventory or excess
supply of new units. To find out what
this hint is telling about the real
estate market, research the length of
time that a property has been listed on
the market in a particular location. If
most of the properties listed for sale
have been sold in at most thirty days
within a ninety-day period, despite
currently prevailing market times for
the majority of sold properties being at
least 60 days, then the real estate
market is on the verge of relaxation.
Also examine
for multiple-offer bidding wars losing
ground. Find out by inquiring several
high-producing real estate agents within
a locality about the percentage of
properties going under contract that are
receiving multiple offers. If the number
of properties that receive multiple
offers prior to being sold is
diminishing, then the real estate market
is transitioning from being a sellers
market to being a buyers market.
Rising
absorption rates for properties that are
currently listed as for-sale can also be
a source of critical information about a
particular real estate market. To derive
a quantitative assessment, compute the
absorption rate of properties of a
specific type (e.g., condo, single
family home, etc.) that are for sale in
a specific real estate market. As a
point of comparison, the current
baseline for the number-of-months
inventory for comparable current
listings is 3.
Also look
out for escalating mortgage interest
rates. Home prices and mortgage rates
interdependently affect one other. That
is, as interest rates plummet, buyers
can afford to pay higher prices for
housing. On the other hand, as interest
rates climb up, buyers can only qualify
for lower mortgages. Generally, higher
interest rates reallocate consumer
spending from home prices towards
mortgage interest cost. Interest rates
are helpful predictors of price
deflation.
Observe
an increased in the use of interest-only,
or 100% home mortgage financing.
Majority of buyers typically have
purchased in the last three years. The
rest could very well be
credit-challenged. A no-money-down or
interest-only offer presents no risk
exposure to buyers, thus they could
easily walk away even before the
purchase is closed or settled. For a
seller to protect his or her interest,
asking for 5 % earnest money to bind the
buyer in breaching the contract is a
practical suggestion.
Lastly,
reading and understanding market signals
in general is also important.. High
absorption rates and escalating mortgage
interest rates hint at a market that is
gradually evolving into a buyers market.
A wise strategy is selling a real estate
property before the price plummets.
Being equipped with an understanding of
these several market signals and timing
can spell the difference between profit
and loss in today's waning residential
real estate
energy.
