MarketStats Blog

The end of the month/beginning of the month is always a busy time here at REMarketStats as we compile the latest market data and get ready for the next month’s charts.

It’s also an exciting time though because we get to see those new real estate market analysis charts.

The important thing with real estate timing is to watch the markets you are interested in and seeing what is happening in the market.  Is it time to buy?  Is it time to sell?  Is it time to watch and wait or hold your existing purchase and watch the value go up?

One of the things I really like about the real estate timing market analysis charts is that it really helps me to know what is actually going on in any particular market and filter through all of the media hype and nonsense about what they claim is going on in real estate.  After all, if you can see one news article saying the housing crisis is over and another article saying that the foreclosure rate is higher than ever on the exact same day, how can you possibly trust the media?

Instead I can rely on the actual data and the market momentum calculations to tell me when to buy, when to sell and when to hold.  This is much better than guesswork in real estate investing.

I’ve seen a lot of news coverage lately claiming that the recession is over and that we are on the verge of recovery.  Home sales are back up in some areas and home prices have even risen in some areas.  Surely this appears to be a good thing, right?

At the same time I have to admit that I’m a bit puzzled at how economists can claim that the housing crisis is over.  Because at the same time that I’m seeing all of this news claiming that things have turned around I’m also seeing news like this:

“Mortgage Delinquencies break another record” -According to MarketWatch, the percentage of residential mortgages in foreclosure or at least one payment delinquent has hit an all time high of 13.16% in the second quarter of 2009.  This is the HIGHEST EVER rate recorded by the Mortgage Bankers Association.  (Source MarketWatch, Amy Hoak, 8/20/09)

Either I’m missing something that all of these top economists understand but I don’t or we are clearly not done with the housing crisis yet.  If the foreclosure rate is higher than it has ever been that means that there are going to be more bank owned homes coming onto the market than we already have.

Is this happening everywhere in the US?  No.  Some areas are seeing some signs of recovery.  But just as clearly some areas are not done going down yet.  If you are a real estate investor I would think that you would want to know which.  Because if you buy in one place you may be making a safe real estate investment.  But if you buy in another you may still see home prices drop in that area.

There is a lot of opportunity out there right now for real estate investors, but you’ve got to know where you should be buying.  You want to be buying at the right time in the right markets so you can actually make money with your real estate investments – not see them drop in value shortly after you buy.  This is where real estate timing comes in.  You need to know When to Buy and When to Sell.  With the proper resources, like the real estate market analysis charts at REMarketStats, you can do just that.

Before you start thinking it’s safe to just jump back into the market just because some economists claimed the housing crisis is over I strongly encourage you to find out more about the markets you are interested in.  If the foreclosure rate is higher than it has ever been it means there are some markets out there that are not out of deep water yet.

We are in a time right now where there are some fantastic buying opportunities for real estate investors.  Prices have dropped massively in some areas allowing rentals to cash flow that haven’t been able to for some years now.  But you need to know that those prices aren’t going to drop a whole lot more.  Do your research, find out about real estate timing.

Let’s take a look at an example real estate market and see how real estate timing works.  The proof is in the pudding, as they say, and this will show you how the real estate timing charts will help you determine when to buy and when to sell.  This is how you make money in real estate.

Here are part of the charts for the Orlando Florida real estate market going through 2007.  The first is the real estate timing market momentum chart for Existing Home Sales.  The second is the real estate timing market momentum chart for New Home Building Permits.

Orlando Existing Home Sales Market Momentum

Orlando Building Permits Market Momentum

The simplest way to interpret these charts is to understand that the line that runs horizontally across the chart is the zero line.  When the momentum reading goes above that zero line it’s an indicator pointing towards buy.  When the line goes below the zero line it’s an indicator pointing towards selling.

It’s important to keep in mind that it takes more than one indicator crossing the zero line to prod us into action.  In this case the first time we cross the zero line going up is late 1996 and early 1997.  When the second indicator crosses the zero line going up it shows us it’s time to buy in the Orlando real estate market.  As you can see the Orlando real estate market stays healthy for quite some time.

If you look at the New Home Building Permits market momentum chart for real estate timing you’ll see that around early 2000 to mid 2001 we kind of hover around the zero line.  However, because the Existing Home Sales Market Momentum chart is still well above the zero line we aren’t getting an action signal.  Again in mid 2005 the market momentum for New Home Building Permits starts to hover around the zero line again.  It isn’t until 2006, however, that the Existing Home Sales crosses the zero line.  Now we have these two indicators pointing towards selling so it’s time to take action.  And you can see after that both charts go well below the zero line all the way through the end of 2007.

Let’s take a look at the Median Home Sales Price for the Orlando Florida real estate market for this same time period to see how the market indicators are reflected in the home prices.

Orlando Median Price

As you can see before we get the first buy signal the Orlando real estate market is pretty flat as shown by the red line.  After we get the buy signal from the market momentum charts home prices start going up and up and up.  Finally after a very healthy amount of appreciation the market momentum charts point to selling.  You can see that after this home prices still go up for a little bit but then about 1 year after that they start to drop after peaking. This is good because it gives us time to get out of the market before we reach the peak.

The market momentum charts have shown us clearly when to buy and when to sell!  We can see how the real estate timing charts are reflected in the home sales prices.

None of this risky speculation that cost so many people so much money.

The charts told us it was time to buy in early 1997 and the prices went up.  Then they told us it was time to sell in 2006 and after that the prices went down.

As you can see these charts only go through the end of 2007.  If you want to find out what is going on in the Orlando real estate market or any other of about 230 real estate markets tracked by REMarketStats across the country visit our website to see more about real estate timing in the markets you are interested in.

Also if you want to learn more about how to analyze the real estate timing market momentum charts or want to see more examples of other markets go to the free video training on our website, REMarketStats video training.

If you’ve looked at our REMarketStats website to see if the real estate markets you are interested in are available for real estate timing you may have been a little confused by the MSA names listed under each state.  This video helps to explain how the MSA names work when you are looking for real estate markets.

Keep in mind, the MSA name is just a name.  If an area you are interested in is close to that MSA then you can use the MSA to look at the real estate timing charts and see what is happening with that real estate market.

Contrary to popular belief it is possible to time the real estate market and know when to buy and when to sell.  You can make a whole lot of money in real estate if you know the proper timing.

Lately I’ve been seeing some real estate markets where investor speculation has really been taking off again.  Investors are buying up every property they can lay their hands on because they seem like such good deals.  A good example of this is the Ft. Myers-Cape Coral area in Florida.  This real estate market was very popular during the boom years for investors who had dreams of massive appreciation.  As a result home sales went through the roof and tons of new properties were built.  The problem was the market tanked before most of these investors could flip their properties.

Now investors have surged back into that market because the home prices have dropped so far and would you believe that the rate of existing home sales is even HIGHER now than it was in the boom years in the Ft. Myers-Cape Coral market?  It’s almost all investor speculation again.

Now the purpose of this post is not to slam on the Ft. Myers-Cape Coral real estate market.  I’m not telling you to buy there any more than I am telling you not to buy there.  That is for you to decide for yourself as a real estate investor.  I would hope that you would make use of the real estate timing charts at REMarketStats so you can analyze any market before you buy or sell.  It’s a whole lot safer than just buying because that’s what everyone else is doing.

The main reason I’m bringing up this surge in investor speculation in different areas is that I want to encourage you to plan for your exit strategy.  What is the purpose of buying your real estate investment?  Are you buying planning on future appreciation?  Are you buying for cash flow?

In real estate investing it’s crucial to have your exit strategy in mind before you buy.  How will you get paid and make money on the deal?  If you are buying planning on appreciation I strongly urge you to have a look at some real estate timing charts before you buy.  If you are just thinking about buying because everyone else is or you heard it’s a good deal, I hate to break it to you but you might be in for a long, long wait before your investment starts to climb in value.

Are you buying for cash flow?  This is a little safer because if a property cash flows you can pretty much hold it forever, whether the market appreciates or not.  I would still recommend looking at real estate market timing charts before you buy.  I would do this because, in my opinion, if you had to choose between two properties, both cash flow, but one is in a market that is going to start going up and the other is in a market that is still going down I would definitely want to chose the market that is about to go up.  You’ll make a lot more money that way.  The other thing about cash flow that you need to take into consideration is how is the rental market in that real estate market?  No matter how good a deal sounds, if you can’t find tenants for it, or are afraid to collect the rent because the neighborhood is so bad, it really isn’t a deal worth getting into.  Talk to some property managers before you buy.  They should be able to give you some information about the rental market in that area.

The other thing that I strongly encourage you to do in addition of planning for your exit strategy is to have a BACKUP PLAN.  Unfortunately sometimes things don’t go as planned.  Your first exit strategy may not always work out the way you wanted. If you have a backup plan in mind you’ll be a whole lot better off.  It will be much easier for you to deal with whatever problem comes up.  For example, if you are buying in a market that is getting ready to go up and you are buying planning for appreciation, that’s your first exit strategy.  As a backup exit strategy I think it would be good to make sure that the property at least breaks even on cash flow, but preferably cash flows.  That way if it takes longer than you anticipated for the values to go up you can at least hold the property and still have it be a sound investment.

This is one of the reasons I don’t like negative cash flow investments.  It makes it harder to have a strong backup plan when you are bleeding money every month.

Remember, I’m not saying whether you should or should not buy in any particular market you are interested in.  That’s up to you.  I’m urging you to exercise caution.  Don’t just buy because everyone else is buying or it seems like such a good deal.  That’s not smart investing.  Do some research first and then have your exit strategies in place.

I received a very good question today regarding the real estate market timing charts at REMarketStats.

JP asked:

“There’s no doubt in my mind that timing emerging real estate markets can be super profitable, and your indicators are great.  The problem I have is this…

To determine the next emerging markets, I would have to study hundreds of charts every month.  Is there some easier way to do this?”

JP asked an excellent question and I wanted to share my answer with everyone.

In fact, there is an easier way to make use of the real estate market timing charts.  Certainly the first couple of months will take a bit longer no matter how many charts you look at because it takes a bit of time to become comfortable with analyzing them.  The training videos on the REMarketStats site certainly will help you to learn how to analyze the real estate markets.  In fact, I can read through the 230 or so charts in about 3 hours now because I’m used to looking at them.  So definitely over time it will get quicker.

But more importantly, it really isn’t necessary to look at every single chart.  It will depend some on your investment criteria but what you’ll probably want to do is to keep a “watch list” of markets you are interested in.  That way each month you can just look at the charts that meet your criteria.  It will go much, much quicker that way.

For example, a market like Flint, Michigan or Dayton, Ohio probably wouldn’t be on your watch list unless you live in that area or you are buying purely for cash flow and not appreciation, because even when the indicator data is up in those markets the appreciation rate isn’t nearly as strong as in other areas.

Also, some markets may have entry price points that are just too high for you to want to invest in, even if the home prices appreciate quite well when the indicators are up.  Markets such as San Francisco or Washington DC are going to be much too expensive to cash flow or even have a low negative.  If having positive cash flow or at least break even cash flow is high on your priority list you can also take those types of markets off your watch list.

Other criteria to consider are markets that are in population decline.  For the most part you probably won’t see these markets having significant appreciation rates any time soon.

Once you establish your criteria and then put together a watch list you can probably review those markets each month in about 1 hour, which really isn’t that much time at all.  If you can spend only 1 hour per month to determine the best real estate markets for you to invest in, isn’t that time well spent?  Especially since it can make you tens of thousands of dollars more in profits per deal.

It’s important to be clear that when I talk about using real estate timing to analyze market cycles to time your real estate investing I am NOT talking about predicting the real estate market.  A prediction is nothing more than an educated guess, or sometimes not even educated.  Remember Jim Cramer? “Bear Stearns is Fine! Don’t move your money from Bear.  That’s just being silly!”

Jim Cramer talks about the stock market but it really isn’t that different from real estate.  As soon as you try to make a prediction you are moving into the field of speculation and guess work.  That may work for some people in real estate investing, but not for me.

The market momentum charts at REMarketStats tell us a market’s current actual situation.  What is going on right now in that market.  What makes this useful is that this information precedes public knowledge and behavior typically anywhere from 6 to 12 months.  Particularly during the peak and bottom of the cycle when we want to take action.  So we aren’t precicting with real estate timing, we are making use of market analysis data that tells us what is actually going on before most people know about it.  This allows us to buy and sell at optimum times, the times that are going to make us the most money.  Want to learn more about how real estate timing and market momentum works?  Take a look at the real estate timing videos on our website.  We show you actual examples of markets as well as how to interpret the market momentum charts.

In my last post, I showed an example of how you can make money with real estate timing, in fact I showed actual numbers of how much more you can make by using real estate investing timing than if you just followed the mass media.  If you haven’t seen the video yet, it’s worth watching.  Unless, that is, you aren’t interested in making 3 times as much money per deal.

Today I’m going to show you another example, in Austin Texas.  We look at the real estate timing market momentum charts and then compare them to home prices so you can see how the market momentum charts show you When to Buy and When to Sell.  Then we compare how much you would make if you bought based on the mass media and how much you would make if you bought based on the real estate analysis charts.  How does an extra $50,000 sound?

But I also add an interesting and lucrative twist in this example that can make an extra $75,000!  This clip is worth watching just for this twist.

In continuing with the series on looking at market indicators and how they affect real estate timing I want to look at new home building permits today.

New home building permits are the number of permits pulled in an MSA each month for the construction of new single family homes.  This is how we gauge demand for new construction housing in real estate markets.  As orders for new homes go up real estate markets respond and builders start building more homes.  The addition of new construction housing stock in a real estate market reflects the overall performance of the market.  If the demand for housing stock is growing we would see it reflected in the real estate timing market momentum charts for that MSA and the momentum calculation would be above the zero line.  If the demand for new construction housing is shrinking we would see the real estate timing chart’s market momentum calculation drop.

When you look at the market momentum charts for multiple market indicators you can see the direct correlation between the market momentum and the values of homes in the MSA.  Take a look at this video on real estate market indicators, titled Real Estate Investing – How Market Indicators Work, to see examples of how we look at real estate trends in market momentum and how the real estate timing charts tell us When to Buy and When to Sell

In my last post I talked about the importance of the real estate indicator population growth when it comes to real estate timing.   Today I want to look at the market indicator existing home sales.

This is a very important indicator when we are trying to gauge the overall health of a real estate market.  Existing home sales shows us the demand for housing in a real estate market.  Existing home sales is the actual number of existing homes (in other words, not new construction) that have sold in a particular market.  It isn’t homes pending or homes available for sale, it’s the actual number of homes that sold. 

When you perform market analysis in real estate investing you need to measure the current demand against the past performance to see how a market measures up.  When we calculate market momentum we do just that.  The market momentum of existing home sales shows us the current level of buyer demand as a measure against the past.  If the momentum is up it means that buyer demand is stronger than it was, if the momentum is down it means demand is weaker.

We have to keep in mind that it takes more than one indicator to prod us into action.  We want to see multiple indicators pointing towards similar action before we jump in and buy or put our real estate investment on the market to sell.  But, gauging this level of buyer demand by using existing home sales is a very important indicator to watch as part of your real estate market analysis.