3 Signs Real Estate Prices Will Change

Q: Gerald, I’m trying to stay on top of the real estate market, how do I know when prices will start moving in the other direction? Stan, Utica, NY

A: Good question, Stan.  You are correct to monitor your local real estate market so you can stay ahead of the game and ahead of your competition.  I’m going to give you 3 indicators that telegraph a possible inflection point resulting in real estate price changes:

1) Housing Inventory Levels: Home sale activity is the best leading indicator of real estate price trends–this is because buyers create the demand for housing that is directly linked with price movement.  Housing inventory levels (# months required to sell the homes for sale in a market) demonstrate relative supply and demand–6 months of inventory tends to be a tipping point, less than 6 months of inventory suggests prices will rise and above 6 months of housing inventory suggests that prices may fall.

2)  Building Permits: Real estate construction plays such a big role in our overall economy, and because homebuilders have to be keenly aware of housing demand, building permits are an important indicator to track as a way to determine real estate price changes.  When building permits go up, prices tend to go up and vice versa.

3) Mortgage Loan Defaults: Occur when a homeowner doesn’t make a mortgage payment for a certain period of time–typically 3-4 months depending on where you are in the US.  Normally when mortgage loan defaults are increasing, real estate prices tend to decline and vice versa.

Thanks for your question, Stan.  For more real estate tips and information visit my blog at geraldlucas.com.