How to Tell if Your Market is Turning

SUMMARY

There are 5 indicators to watch:

1. Inventory Increasing

2. Days on market increasing.

3. Months of Supply Increasing

4. Number of multiple offers and full price sales decreasing.

5. Number of expired listings increasing.

FULL TRANSCRIPT

When the market is turning does not mean we are going into a collapse. It does not mean we’re going through an economic collapse or an economic downturn necessarily. Now, it can be…

This is not a “sky is falling” video. It is a “get ready and be prepared” video for whatever is happening in your market and you need to know what is actually happening in your market.

Hi, there. It’s Kevin Ward, the founder of YESMasters Real Estate Success Training, helping you get more yeses and more successes in your business and your life.

Today I want to talk about how to tell if your market is turning because one of the things that’s happening is people are talking about “Is the market turning?” And the question is yes, it’s turning, but is it turning where you live?

Because we’ve also discovered that there are some areas where some cities, some markets, where the market has really slowed down, and other markets are still as hot and heavy as ever. They’re still major seller’s markets. There’s other markets that are pretty much going buyer’s markets.

So how do you tell if your market is turning? There’s really five things for you to pay attention to and observe and watch in your market to tell what’s really happening.

1) Check Inventory

So the first indicator of if a market is turning in your market is inventory. And inventory is simply how many houses are on the market. Just the number of houses for sale on the market, right?

2) Days on Market

The second indicator is Days on Market. What is the average days on the market of houses for sale? Okay? The average days on the market goes from 27 days to 47 days, things are slowing down, right? So what is the average days on the market?

3) Housing Supply

How many months of inventory is there, if no other new homes came on the market? What is the supply? What are the months of supply? I’ll talk about how to do that and how to calculate that in just a second.

These are considered the three classic ways that you can tell what’s happening in a real estate market.

4) Number of Multiple Offers

Then the fourth offer. I’m gonna add a couple more that I think are helpful in a lot of your markets just so that you get a feel for what’s happening.

So, one is the number of multiple offers. The number of multiple offers that are coming in and with that is the average, the sales price to list price ratio. How many homes are selling at or above list price? So, how many multiple offer situations are you seeing? Because that’s really the only way you get above list price offers.

So, if you see where, you know, last year I was putting listings on the market and almost every single time, we’re getting in multiple offer situations. And now this year, that’s not happening anymore. Well, that’s not so much a statistical indicator as it’s just having your fingers on the pulse of what’s happening in your market.

5) Number of Expired and Cancelled

And then another indicator that is also an opportunity is the number of expired and canceled listings, so the number of expired and of canceled listings. That means the number of houses that are going on the market. They’re selling or not selling and then they’re not selling and then they’re coming off of the market.

So, the question is, what is happening in each of these things? So, number one. If inventory is going up, what does that tell you? That the market is turning. If inventory is going up, days on the market is going up, supply is going up, and the number of multiple offers and sales price to list price ratio is going down, and the number of expireds is going up, that is a pretty good indicator that the market is turning. I would call these, in fact, no pun intended, I would call these red flags that the market is turning.

So inventory is going up. Now, that’s not hard to track, is how many active homes were on the market for sale last month and the month before that, year over year, and how many are on the market now?

Days on the market. Easy on your MLS to pull up the stats for that, and there are other softwares that you can use to go into more detail. And so, for like BrokerMetrics and companies like that that do more detailed breakdowns of market statistics and so forth.

Sometimes agents ask, “How do you calculate how many months supply of inventory?” So this is a theoretical calculation that, if you take all the homes that are on the market right now, and if no other new homes came on the market for sale, how long would it take, theoretically, before we would run out of houses? Right? And that is your supply. That’s how many months supply of inventory.

So let’s just say if we had, for example, if you had 100 homes active on the market and this month 20 homes sold, so you get 100 active and 20 of them sold this month. Sold this month, that means that that can happen for 5 months before we’d run out of houses. If every month, 20 homes sold, right? You had 100 on the market and every month 20 sold, you’d run out of houses in 5 months.

So if you have 100 active properties on the market and 20 of them sold this month, that’s a 5 month supply of inventory. So you take the number of actives, you divide it by the number of solds in the same market, and that tells you your months supply, which should be in this case 5 months supply.

That is a theoretical calculation, but it’s just a way of taking inventory, days on market, and all of this and looking at it and going, you have 100 homes on the market, and only 10 are selling every month, that’s a 10 month supply.

If you look back to 6 months ago, at 6 months ago, there were 80 homes on the market and there were 30 of them selling every month, that’s a 2 1/2, a little over 2 1/2 month supply, which means the market’s slowing down, if there’s a 5 month supply now, right? So if the supply of inventory is going up, not only in how many homes are in the market, but how many of them are on the market compared to how many of them are selling.

Because, see, you could have 500 homes on the market, and if 250 are selling every month, your inventory is high but your supply is low because in two months you’d be out of houses, right? So it’s not just the inventory. It’s how long would that inventory last.

So a high inventory can mean that just a lot of people are moving, right? A high inventory does not necessarily mean that the market’s slowing down. Inventory may be going up, but if a lot of them are selling, then your supply is still going down so that still tells you that the market is hot.

But if inventory’s going up and the supply is going up, which means the number of houses going on are increasing but the number of houses selling are not increasing, it’s actually decreasing, then you’re looking at a market turn.

So those five criteria, those five indicators, if you’ll study those and watch those and watch them regularly in your market because whatever the market’s doing right now, the key is to have your pulse on the market.

Now, you may be asking, “Why does all this really matter?” Here’s why it matters, because when you’re talking to sellers, you have to know what’s happening on the market because if they think the market’s still hot and it’s going the way it’s been going and all of a sudden it’s turned and it’s softening and prices are starting to go down and homes are getting harder to sell, they’re still thinking they can price their home here when the reality is they need to price it here.

So next week, I’m gonna be shooting another video. I’m publishing another video on what it means and how to deal with it and how to convince sellers when your market is turning. So that video will come next week.

If this video’s been helpful, make sure you give it a thumbs up. Post any questions or comments or other ideas that you have. I’d love for you to share those. Make sure you subscribe to the channel if you haven’t done it yet, so that next week, you’ll be able to see the next video on how to convince sellers to price their home right when the market is turning.

I’ll see you next week.