“Potential is all of the resources you have in front of you. Efficiency is putting those resources to use effectively.”
— Garrett Gunderson: is an entrepreneur and author
A BETTER INDICATOR OF A HEALTHY MARKET: LIQUIDITY
Blog brought to you by: Ken H. Johnson, Ph.D. — Florida International University (FIU) and Editor of the Journal of Housing Research
What is the definition of a healthy housing market? Is it a housing market in which home prices are decreasing? Few would agree with this. Is it a market in which home prices are increasing? At first glance, many would agree with this definition. However, increasing prices cannot be used to diagnose a healthy housing market. If increasing prices indicate market health, then in 2005 housing markets were “very” healthy, and we know that this is not true.
If pricing does not indicate market health, then what does? The answer is simple: it is market liquidity and not pricing that indicates the health of a housing market. Liquidity has been defined in many ways but it basically boils down to: can an individual seller, at a time of their choosing, successfully market their property at or near market value? We often hear of rates (turn-over and absorption) that are related to this concept. Unfortunately, these measures are difficult to estimate and they all have something to do with outstanding inventory. What really matters, regardless of outstanding inventory, is the likelihood that a property will close. This is the most basic meaning of market liquidity and it can easily be proxied.
All of the data necessary to proxy a particular market’s liquidity (and thereby its health) is available on the daily “hot sheets” of almost every MLS in country. Since liquidity is really just a batting average all that needs to be done is total the successful transactions (closed properties) and divide these by the failed listing transactions (Expireds + Withdrawns + Cease Efforts + Cancelled)[1][2]. The resulting number is a very close approximate to the probability that any given property listed in that market will close and an increasing trend in this number indicates improving market health.
Implications
Pricing trends do not indicate the health of a housing market. Keep in mind. For almost every sell in an increasing market, there is a repurchase at a higher price. For almost every sell in a decreasing market, there is a repurchase at a lower price. Thus, pricing is a “double edged sword”. Gains/Losses on a sell are almost always accompanied by higher/lower repurchases. Thus, pricing trends can never indicate the health of a particular real estate market. Instead, it is market liquidly, which can be easily proxied, that actually indicates market health. After all, the real goal is for a seller of property to be able to transact at or near market value with a high degree of certainty. Fortunately, most MLS’s around the country have the information at their fingertips to estimate the health of their particular market.
It is liquidity (not price) that matters.
Endnotes
[1] Different MLS’s have similar but not exact designations for these various categories. The goal is simply to divide successes by failures.
[2] The timing of the calculation will depend on the number of outcomes each day on a particular market’s MLS hot sheet. The goal is to avoid a mathematically undefined estimate. Thus, larger markets might do this average daily, while smaller markets might only calculate this average on a monthly basis.
THE NEED FOR A TRUE REAL ESTATE PROFESSIONAL
Anyone in the real estate industry for any length of time realizes that the education required and the resources necessary to be a true industry professional have dramatically increased over the last two decades. In today’s volatile market, it is necessary to have a true real estate professional if you want to sell your home for the best possible price in the shortest amount of time – and make sure the deal gets to the closing table!
The National Association of Realtors (NAR) explained in a recent Existing Sales Report that 18% of all contracts were cancelled in the previous. This compares to 16% the prior month and 9% in August of 2010.
The good news is homeowners have realized that attempting to sell their home on their own is an arduous process best left to an industry expert. According to NAR’s 2011 Profile of Home Buyers and Sellers, the percentage of sellers selling on their own, known as For Sale By Owners (FSBOs), has dropped almost in half over the last 20 years:
Bottom Line
If you are selling a home in today’s confusing real estate market, it is best to take on the services of a local real estate expert. He/she will guide you through each step of the transaction thereby increasing the likelihood that there will be fewer inconveniences for you and your family.
4 TIPS TO HELP YOUR BUYERS REFINE THEIR HOME SEARCH
Are your buyers having a tough time wading through the inventories of homes to find the right home? Kelly O’Ryan, an office manager with Coldwell Banker in Lexington, Mass., offered some of the following tips in a recent article at RISMedia to help your home buyers narrow their search when looking for properties:
1. Have your home buyers make a list of all the must-haves for their future home, such as the number of bedrooms and school district they must have.
2. Make sure your buyers get pre-approved for a mortgage by a lender. This will help ensure they don’t look for homes that are only within their budget.
3. Encourage your buyers to research available homes on the Internet so they get a feel for what’s available. You can help them sort for properties within their price range and locate homes that fit their criteria. But have them review photos and videos of multiple homes on the Internet to help them narrow their search before you take them to view homes in-person.
4. Remind your home buyers to not get sidetracked when viewing homes at aesthetics that can be changed out easily, such as paint colors and light fixtures. Help them to see past any bad decor and focus in on items in the home that can’t easily be changed, such as the home’s location and lot size.
Source: “How To Lead a Refined Real Estate Search”
QR CODES: GIVE THEM A REASON TO SCAN
QR (Quick Response) codes must be used correctly to serve as valuable marketing tools.
QR codes should direct consumers to a mobile landing page, otherwise they load slowly, do not format correctly, and do not allow for easy browsing. They also must be accompanied by a clear call to action, encouraging consumers to scan for a discount or to receive useful information. After consumers scan the QR code, there must be an exclusive offer or important content or information waiting for them.
Although QR codes can be had for free, experts say it is important that they come with reporting tools, which can help real estate agents gauge the success of their marketing campaign. Free codes also prevent changes in content, requiring that a new QR code be created.
Finally, agents should keep the URL short to make the code easier to scan.
Source: The 5 Rules of QR Codes
HOUSE FLIPPERS TO BLAME FOR HOUSING DOWNTURN?
House flippers — made up of investors who bought up homes during the housing boom, possibly made a few upgrades to the home, and quickly resold the homes for high-dollar profit — played a larger role in causing the housing bubble than previously thought, according to a new federal report out by the Federal Reserve Bank of New York. The impact that speculative real estate investors played in driving the housing downturn has mostly been overlooked until now, the researchers note.
The speculative investors used low down payments and subprime credit in buying up multiple homes at once, the report says. Their actions attributed to home prices in some areas being inflated, researchers say.
“This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home for their family,” researchers note in the report.
House flippers made up a big piece of the real estate market during the housing boom. According to the report, more than one-third of all home mortgages from 2006 were to people who already owned at least one home. What’s more, “in Arizona, California, Florida and Nevada, where average home prices more than doubled from 2000 to 2006, investors made up nearly half of all mortgage-backed purchases during the housing bubble,” the Associated Press reports. “Buyers owning three or more properties represented the fastest-growing segment of home owners during that time.”
When home values began to fall in 2006, investors defaulted on their loans in large numbers, accounting for more than 25 percent of seriously delinquent mortgage balances, according to the report. In investor hot-spots like Arizona, California, Florida, and Nevada, investors accounted for more than a third of seriously delinquent mortgage balances from 2007 to 2009.
The report urges lenders and regulators to take action to limit speculative borrowing in order to avoid a future housing downturn.
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