Understanding Important Real Estate Trend Analysis
Real estate trend analysis is the process of collecting historical real estate sales information and attempting to spot a pattern, or trend, in the information. If we are vigilant, we can identify trends and trend changes even as they happen. I think we often are surprised with market movements when key trend tracking should have had us ready for the moves that are upcoming.
The Tallahassee Real Estate Blog has made a commitment to continually monitoring the Tallahassee housing market. We post all kinds of charts, graphs, and analysis of the Tallahassee real estate market and we report trends and trend changes as we start to see them occur. We feel that our real estate market forecasts will be more accurate than any others due to this commitment. Additionally, we publish a free real estate newsletter to which you can subscribe in the right sidebar of the Tallahassee Real Estate Blog.
During the course of the past two years, we have received a lot of feedback and correspondence from readers, home buyers, home sellers, and real estate professionals. Often times, I have seen many of these people are a little confused with some of the analytical processes that I employ so I thought I would use today's blog to explain the importance of real estate trend analysis and how to differentiate between short term trends and long-term trends.
Tallahassee Housing Inventory Trend Analysis
In order to demonstrate the differences between short and long-term trend analysis, we will look at the changes in housing inventory levels in Tallahassee. This first real estate graph can be found on the Tallahassee Real Estate Market Bulletin, a site updated twice per week with charts, graphs, and analysis of the Tallahassee housing market. It shows the changes in Tallahassee inventory of homes for sale on a daily basis.
We will look at each trend in this graph one at a time, in order to describe the affect of seasonality and odd behaviors (noise) that occurs in the market all of the time. We will start with the short-term inventory levels in Tallahassee housing and conclude with the long-term inventory levels. These graphs show the net resulting inventory growth due to homes being added to the market (new listings) combined with homes leaving the market (sales, canceled and withdrawn listings, and expired listings). So, on a day that had 10 sales, and 10 listed that expired or canceled, we would record a zero "0" for inventory change. Days where inventory change is positive, we see the glut of homes for sale growing; days where we see inventory change is negative, we know that the glut of homes for sale is being reduced.
Each graph will include a description of what we are seeing as well as conclusions that are justifiable from the graph. The left margin of each graph shows inventory change on a daily basis. The values go from +4 down to -16, so as an example, if the point on the graph you are viewing is at -6, that means the trend that day showed the number of homes on the market was 6 fewer per day for the entire trend period (30 days in the graph below).
Short Term Trends Show Lots Of "Noise"
The first graph shows the 30 day trend in Tallahassee home inventory. In order to calculate the thirty day trend on each day, we take the average of the most recent thirty days. For example, we can see that on September 23, 2009, the inventory of homes was reducing at a rate of 4.1 homes per day. The 30-day trend is highly subject to seasonal effects. This graph might suggest that more people put homes on the market from February through March than any other time per year.
Mid-Term Trends Contain Less Noise
The second graph shows the 90-day trend in Tallahassee home inventory. In order to calculate the ninety day trend on each day, we take the average of the most recent 90 days. For example, we can see that on September 23, 2009, the inventory of homes was reducing at a rate of 6.7 homes per day. Since this takes a look at the average of 1/4 of the year, we have reduced some of the "noise" in the data and the trend line is less volatile. Comparing this graph with the one above, we can see the listing activity in February and March have a far greater affect on the 30 day trend then it does on the 90 day trend.
Removing Cycles In Housing Market Analysis Removes Noise In Trends
The third graph shows the 180-day trend in Tallahassee home inventory. In order to calculate the 6 month trend on each day, we take the average of the most recent 180 days. For example, we can see that on September 23, 2009, the inventory of homes was reducing at a rate of 4.6 homes per day. Since this takes a look at the average of 1/2 of the year, we have reduced even more of the "noise" in the data and the trend line is much less volatile. Comparing this graph with the two above, we can see the listing activity in February and March has little effect on the 180 day trend.
One Year Trends Show Non-Seasonal Movement In The Market
The fourth graph shows the 1 year trend in Tallahassee home inventory. In order to calculate the 1 year trend on each day, we take the average of the most recent 365 days. For example, we can see that on September 23, 2009, the inventory of homes was reducing at a rate of 3.3 homes per day. Since this takes a look at the average of the entire past year, we have eliminated all of the "noise" in the data that could be due to seasonal effects. Every point in a 1 year trend has a spring, summer, winter and fall. This means that all home listing seasons are included as well as all home selling seasons. Any change in the trend has to be due to something happening beyond the scope of seasonal changes in the housing market. This is the key trend that we seek!
Understanding Important Real Estate Trend Analysis
I hope this blog's review of the different trend periods helped you understand the difference between a short term trend and a long term trend. Most importantly, I hope it helped people understand that a 1 year trend is not subject to the seasonal effects that shorter terms trends cause in the market. When we view a 1 year trend in real estate, we most likely have an incredible view of both what is happening, as well as where we are currently heading.
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