Most people wait to jump on the real estate bandwagon until the market is going gangbusters again.  The truth is though, you don’t want to be like most people.  Even if you learned your lesson about buying at the top from the last shift in the real estate cycle, you don’t want to wait to buy until everyone else is buying.  You’ll miss out on all the profit.  If you want to use real estate trends to your advantage you have to do what no one else is doing (well, some of us are, just the vast majority isn’t).  You want to buy when no one else is buying.  That’s a simple way to put it, but you want to do it with the proper real estate timing.  If you look at a real estate cycle when do you think the best time to buy is?

We already know it isn’t at the peak of the market, when everyone and their brother Sam becomes real estate investors.  We don’t even want to be buying when a market is starting to get hot because we’ve already missed out on a lot of appreciation and it’s a lot harder to find deals then because we are already in a seller’s market.  At the same time we don’t really want to be buying when a market is going down.  After all, who knows how far prices will drop and how long the market will stay down before it climbs back up.

So where does that leave us?  The bottom of the market.  This is when no one is buying.  Prices are down and the market looks dismal.  It’s counter-intuitive, I know.  But remember we want to buy when no one else is buying.  Why does that work?  There are a couple of reasons:

1. No competition – if no one else is buying that means you get to cherry pick your deals.  Take only the best ones and leave the others behind

2. Appreciation – the opposite of what goes up must come down is true too.  What goes down will go up again!  If you buy when the market is down you are set to capture lots and lots of appreciation.

This is how you use real estate trends to your advantage.  You essentially act counter to the real estate activity of everyone else.  But there is one important caveat.  You don’t want to just buy at the bottom of the real estate cycle.  I know, I just said to do that but let me clarify.  You actually want to buy just past the bottom when the real estate trend is just starting to shift again.  The reason for this is that the bottom of the real estate cycle can last a long time.  Sometimes years.  If you buy at the bottom, who knows how long it will take before you start gaining some appreciation?  That doesn’t sound all that appealing does it?  If you buy, instead, just as the real estate trend shifts past the bottom, just as the market is poised to go back up then you are properly timing your real estate investment.  That’s how you can use real estate trends to your advantage.  Want to learn more about real estate cycles?  Take a look at this video on real estate market cycles (you’ll need to scroll down to it)

Not necessarily.  We look at both unemployment and employment for real estate trends because they can differ.

Employment is the actual number of jobs in a particular real estate market.  Unemployment is the percentage of the workforce that is unemployed.

Here is how they can differ.  If a particular real estate market is experiencing a large influx of population, in other words many people are moving to the area either because it offers the promise of jobs, or it’s a retirement hotspot or something like that, you might see the unemployment rate go up for a while.  Why?  Because people moved there but don’t have jobs yet, or retirees don’t plan on getting jobs.  The result is that the unemployment rate doesn’t look as good.  Conversely, what if an area is in population decline because the job market really stinks?  People are moving away from this market to other markets to look for jobs.  The market in population decline would actually see the unemployment rate go down because people are moving away.

But when we look at the employment numbers we can complete the picture.  Since employment shows the actual number of jobs we can see that an area that is in population decline that might see an improvement to unemployment would still be showing us a drop in the actual employment.  The same goes for a market with an influx of people that showed unemployment going up.  When we look at the employment numbers we can see the number of jobs growing.

Both employment and unemployment are longer term market indicators when it comes to real estate investing timing.  They show us the overall health of a real estate market over a longer term period.  If employment and unemployment market data is solid in a market then we can expect that market to recover quicker in downturns and perform better in upswings than a similar market with poor employment and unemployment market indicators.

Unemployment as a real estate indicator is taken from the unemployment rate.  This is expressed as a percentage.  This is quite common in the news media, we’ll see the national unemployment rate or the unemployment rate for a particular area.  For example, the unemployment rate for the state of Michigan in May was 14.1%, in other words, 14.1% of the available workforce was jobless in May. 

Clearly when it comes to demand for real estate the lower the unemployment rate the better.  After all if a market is shedding a lot of jobs, not too many people are going to be looking to take on the commitment of a mortgage.  With real estate timing and real estate trends, unemployment is a longer term indicator.  This means that in the short term trends may temporarily act contrary to unemployment data.  You might see this happen in the case where a previous surge in employment resulted in an overbuild of housing which caused a temporary surplus.

It’s important that we look at the actually unemployment data for a particular MSA not just state level or regional or even national.  Real estate markets are local so when it comes to real estate investing we need to focus on the local real estate trends.

At REMarketStats we use a moving average to calculate our market statistics to account for seasonal and other types of variations that can crop up in real estate statistics.  Then from that moving average we calculate the market momentum.  This is what actually allows you to look at the real estate trends and practice real estate timing. 

Let me give you a comparison.  If you were to just look at some published statistics for a real estate market you are interested in, for example – existing home sales, all you would be able to do is a direct comparison from one month to another.  This month versus last month, would be one way to compare.  You can see whether sales are up or down from this month over last month.  But what good is that really?  Pretty much none.  That information doesn’t give you any indication of real estate trends or whether home prices are likely to be going up or down.  You need market statistics that are actually useful so you can do real estate timing and actually make money in real estate.

Here is an article that talks about the moving average calculation and why most real estate market statistics are useless