Homes For Sale: Are Prices Going Up Or Down?

Posted on July 5, 2011 by IC N in Residential

It’s worth highlighting that the real estate market in every city or region is different. Prices reflect supply and demand in that area. The challenge when considering homes for sale within a given area is being able to accurately identify these numbers (it’s more complex than many buyers realize). Below, we’ll describe several factors that function as useful barometers of a strengthening market.

Decline In Foreclosures

When a property is foreclosed upon, the lender reclaims possession, readies it for sale, and places it back on the open market. Unfortunately, they do so at a price that is significantly lower than prevailing prices. This creates a drag on the values attached to other houses in the area.

When foreclosure filings are high, prices remain low. As the volume of net filings declines, prices tend to stabilize and begin to climb as inventory slowly dwindles.

Better Job Outlook

Some cities have been hit particularly hard by the recession. Jobs have become scarce, which means fewer people are looking for homes for sale within the area. This circumstance has a direct influence on demand. Simply put, the fewer homebuyers there are in a given area, the lower the demand. This suppresses prices.

When jobs come back, demand for properties rises, which lifts prices. If you’re considering homes for sale within a particular market, look at that area’s unemployment rate. If the rate is dropping, it may be an indication of rising prices in the near future.

Shrinking Gap Between List And Accepted Prices

When the real estate market falters in any given area, the gap between a property’s list price and the amount for which it sells widens. When the offer is lower, this suggests homeowners are more optimistic than the market warrants given supply and demand. As buyers fail to emerge, sellers become more willing to accept lower offers.

When the variance between list prices and accepted offers begins to narrow again, it signals the market may be strengthening. This can be used as a gauge regarding where prices may be heading.

Salaries And Wages Are On The Rise

This is a simple indicator, but few people looking for homes for sale take advantage of it. As average incomes within an area rise, so too, do residential real estate prices. This may be due to homeowners being less desperate for funds since they have more discretionary income left over at the end of each month. Some of these homeowners take their properties off the market, which reduces supply.

Decline In Prices Taper Off

As prices plummet, buyers abandon the market to wait out the storm before returning to pick up bargains at the bottom. In order to time the bottom correctly, a lot of buyers watch the pace at which prices fall. If the pace declines, that may serve as an indication that the market’s bottom is near.

Recent history has shown that this may be a dangerous barometer to use. In many large cities, residential real estate prices dropped and remained at their lows for a significant period before resuming their downward trajectory.

Even with your eye on the indicators above, timing a bottom is difficult. There continues to be excess inventory of homes for sale in many markets. This inventory is creating a glut of supply. That said, the factors above can be used to uncover subtle movements in the market.

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