Finding out market trends - Posted by Don

Real Estate Investing
1

Posted by Don on March 15, 2005 at 14:36:34:

Thanks Ray

Don

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Finding out market trends - Posted by Don

Posted by Don on March 11, 2005 at 13:58:55:

I’ve read a lot of posts where people talk about looking at market trends. Where are they finding this data? I talk with real estate agents and they tend to be out of the loop.

Thanks in advance

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Re: Finding out market trends - Posted by ray@lcorn

Posted by ray@lcorn on March 13, 2005 at 19:26:51:

Don,

A general determination of local market conditions can be derived from the immediate past trend (3-5 years) of the big three of demographics; population, employment and income. Positive trends in those elements usually indicates a healthy market. Static or negative trends may indicate structural weakness in the local economy.

That said, real estate values will generally trend, but not march in lockstep with, the demographic factors. Extraneous conditions such as the cost and liquidity of financing, local supply and demand, and the ever-present location factor will have bearing on final valuations.

Local real estate agents have access to information that can help with establishing the overall market climate in residential real estate. MLS systems track the “average days on market” for residential listings. 90-100 days on market is average… below that the market is stronger and may be a seller’s market… above that the market is weaker and may be trending toward a buyer’s market. Also, if listings are growing faster than sales, the market is weakening, and vice versa.

There is no real comparable stat for commercial properties other than local market studies of vacancies for specific property types or perhaps an appraiser’s data base for recent sales activity. Even with comparable sales data it is hard to extrapolate what brokers like to call the “market cap rate.” In order to know if the number is accurate you must have access to the specific (and confidential) sale terms for a wide number of transactions, which is just not available. That’s why it is best practice to set your own cap rate, which reflects your required return and actual finance terms, to establish value.

ray