Need another reason not to pay too much attention to the 2012 forecasts that you read in the news? Such forecasts are almost always national in scope, and there is no such thing as a national real estate market. All real estate is local. Relying on a national real estate prediction to decide on to buying a home or selling a home in your town is like using a national weather forecast to figure out whether it will rain on your picnic in the park tomorrow.
It’s difficult to get a reliable local market forecast. The best experts are local real estate professionals with access to the multiple listing service (MLS) and experience in the market. But if you don’t have a real estate agent you trust, it can be hard to find a credible source that may not have an interest in selling or buying homes. Few economists make predictions for markets smaller than the top 20 or 40 in the nation. In the end, it’s good to learn how to read the local real estate tea leaves yourself.
Generally today there are two types of real estate markets. The first is driven by foreclosures. Major foreclosure states like Florida, Arizona, Nevada, and California have experienced the lion’s share of foreclosures, which have disrupted local markets and driven down prices. As investors moved in and sellers withdrew, inventories shrank and prices temporarily zoomed. Over time, prices will stabilize if there are no more large waves of foreclosures hitting the market.
Today, the average time to process a foreclosure is more than a year, and it is very difficult for consumers to know when lenders might release large numbers in their market. Fortunately, most lenders control the marketing of their foreclosed properties to get the best possible prices and make the least impact on local prices. You can find good data on foreclosures in your market by researching reports on sites like (Lender Processing Services (LPS), ForeclosureRadar, and RealtyTrac.
Depending on where you live, you may instead encounter the second type of real estate market, where local economic forces have a greater impact than foreclosures. Jobs drive home sales. Start your research with unemployment data, which is updated monthly by the Bureau of Labor Statistics (BLS). You can find excellent information on the BLS site that will give you a sense of whether local employment is trending up or down. Keep up with local business news and check local employment sites to get a sense of your local job market.
Another good measure of housing demand is rentals. If your market is experiencing higher occupancy rates and rising rents, chances are that there is upward pressure on home prices.
Did you read yesterday’s post about how home prices will affect your chances of buying a home or selling a home?
Chances are that stabilization will be the key to your market as well as the nation as a whole. Watch local list and sale prices from your local MLS. If this information is not released publicly, ask your Realtor for regular updates on local housing data. Pay attention also to inventory data, which is seasonal, increasing in the spring and declining in the fall. Compare monthly inventory and time on market on a year-over-year basis to get a sense of whether supply and demand are in sync or not. A lean inventory will put upward pressure on prices. A hefty inventory might indicate demand is too weak and prices might slide.
Chances are 2012 will not be an exciting year for real estate, which may be just as well. Most observers will be pleased as long as the key drivers—jobs, inventories, and foreclosures—are all moving in the right direction. Prices will follow, and by this time next year, thanks to stabilization, prices will probably be little higher than they are now. In the housing market these days, that’s called progress.
Steve Cook is Executive Vice President of Reecon Advisors and covers government and industry news for the Reecon Advisory Report.
Cook is a member of the National Press Club, the Public Relations Society of America and the National Association of Real Estate Editors, where he served as second vice president. Twice he has been named one of the 100 most influential people in real estate. He is a graduate of the University of Chicago, where he was editor of the student newspaper. In addition to serving as managing editor of the Report, Cook provides public relations consulting services to real estate and financial services companies, and trade associations, including some of the leading companies in online residential real estate.