Understanding Trends In Real Estate
With the feedback that I have received on our market update, I think it might be wise to discuss why we publish real estate trend analysis, rather than just charting the daily ups and downs of the market as do many other real estate web sites.
Actual inventory trend analysis helps us to understand the overall movement of our residential inventory over a period of time. Of all the trends in real estate that we study, inventory trends are the most important. The longer the period of time that we study, the less that "noise" affects our view.
So what is "noise" in our analysis of inventory in the Tallahassee market?
- In the short term, noise could be the fact that a majority of our closings occur at the end of the month, therefore the green area of the graph (Departing Inventory) could appear stronger near the end of the month.
- Over the medium term, an example of noise could be a builder's 50-home subdivision contract expiring and showing 50 homes leaving the market. That same builder could re-list those homes a month later with a new real estate company and the trend would be reversed (though in reality nothing has changed in regards to inventory in the market).
- And for long-term, seasonality causes the most noise. Those times of the year when sales either increase or decrease due to natural moving cycles.
The best trend analysis that we can produce is the one-year trend. By constantly looking back 365 days, the analysis will be able to remove all random noise and give the reader the best view of the inventory flow in the real estate market.
And why is this so important? Because supply and demand economics will guide as to the direction of price movement. As a general rule, if supply is dropping, prices will begin to rise (unless something major has happened to demand). The contrary is true as well, as we are currently experiencing in Tallahassee real estate market. Our supply is increasing, and therefore we are seeing prices drop. The study of the supply trend will allow us to know when we should be able to see prices (and thus the market) turn back to appreciation.
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Joe Manausa is a real estate investor and the Broker and Co-Owner of Joe Manausa Real Estate. He can be reached via e-mail through the Tallahassee Real Estate Website or catch his latest writings on the Tallahassee Florida Real Estate Blog , or by calling (850) 386-2001.
Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.