Timing the Market

Summary: Real estate buyers and sellers are always looking for ways to time the market, and the ones with professional experience succeed because they do it by the numbers, not their emotions.

Real estate buyers and sellers are always looking for ways to time the market, and the ones with professional experience succeed because they do it by the numbers, not their emotions. One of the primary indicators for the housing market is interest rates for mortgages and other real estate loans. These are closely related to the overall performance of the real estate market, because those rates control the purse strings of the funds used to buy property. Historically, when interest rates rise, housing sales slow. When rates drop, sales increase. Recently we have noticed a cooling off of the housing market, because rates are moving steadily higher. One phenomenon that holds true when rates rise is that it often spurs sales of homes. Buyers who have been sitting on the proverbial fence, watching rates slide and trying to decide when to lock in their best (i.e., lowest) rates, suddenly panic when the numbers reverse and head upward. Rather than sitting by and idly watch interest rates climb beyond their reach, they jump in and buy without hesitation. This often brings a flock of reluctant buyers out of the woodwork, and can be a pleasing reaction for home sellers who are concerned about the troubling news of inflationary rates and a bearish real estate outlook. But how do we ascertain for sure whether it is a buyer's or seller's market? It is a bit like watching the tides when they begin to shift on a beach - only by looking very closely at the action of the currents can you observe the specific signs that show whether the water is receding or coming inland. One of the most dependable clues in the real estate business is based on how long it takes for a house to sell. To track this critical data, simply ask a real estate professional to provide you with information on sales in your neighborhood, and make sure they include a category known as "time on the market". By interpreting the statistics related to how long it takes to sell a home, you can easily spot trends and find out whether your are in a buyer's or a seller's market. The broad average of this measure is normally about 12 weeks. But this can vary considerably, depending on the particular market dynamics of a given region of the country, section of town, or neighborhood. To gather accurate data related to your particular market, study the time on the market for your specific type of property and neighborhood. In a bullish market, time on the market may be a matter of days, not weeks. In a bear market, it can extend to six months or more. But as a general rule, whenever it takes an average of more than four months for houses to sell, it is defined as a buyer's market. Conversely, if houses sell in two months or less, we have a seller's market. Between the two ends of the scale, there is room for all sorts of change and variation, but you can adjust your reading of the market timeline by watching the figures related to the time on the market. If the average compresses to a matter of two or three weeks, it may be a sign that demand is extraordinary, and that the market is extremely favorable to sellers. During a recession, the time a house sits on the market can extend to years, even if sellers continue to drop the price.