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Real Estate Market Watch: Tell-Tale Signs of an Imminent Transition

Real estate consumers emerge as the victors in the latest array of real estate bubble headlines. The focus of the media reveals a wide set of information and opinions about real estate markets and practices to the individual property owner and investor. There are several tell-tale indications that hint at the underlying conditions of the real estate market. Real estate professionals may not make explicit mention of them, but the clues do not lie. Different forms of incentive schemes are being offered by developers on newly construction buildings or homes. The vast existence of such incentive schemes beacons a high inventory or excess supply of new units. To find out what this hint is telling about the real estate market, research the length of time that a property has been listed on the market in a particular location. If most of the properties listed for sale have been sold in at most thirty days within a ninety-day period, despite currently prevailing market times for the majority of sold properties being at least 60 days, then the real estate market is on the verge of relaxation.Also examine for multiple-offer bidding wars losing ground. Find out by inquiring several high-producing real estate agents within a locality about the percentage of properties going under contract that are receiving multiple offers. If the number of properties that receive multiple offers prior to being sold is diminishing, then the real estate market is transitioning from being a sellers market to being a buyers market.Rising absorption rates for properties that are currently listed as for-sale can also be a source of critical information about a particular real estate market. To derive a quantitative assessment, compute the absorption rate of properties of a specific type (e.g., condo, single family home, etc.) that are for sale in a specific real estate market. As a point of comparison, the current baseline for the number-of-months inventory for comparable current listings is 3.Also look out for escalating mortgage interest rates. Home prices and mortgage rates interdependently affect one other. That is, as interest rates plummet, buyers can afford to pay higher prices for housing. On the other hand, as interest rates climb up, buyers can only qualify for lower mortgages. Generally, higher interest rates reallocate consumer spending from home prices towards mortgage interest cost. Interest rates are helpful predictors of price deflation.Observe an increased in the use of interest-only, or 100% home mortgage financing. Majority of buyers typically have purchased in the last three years. The rest could very well be credit-challenged. A no-money-down or interest-only offer presents no risk exposure to buyers, thus they could easily walk away even before the purchase is closed or settled. For a seller to protect his or her interest, asking for 5 % earnest money to bind the buyer in breaching the contract is a practical suggestion.Lastly, reading and understanding market signals in general is also important.. High absorption rates and escalating mortgage interest rates hint at a market that is gradually evolving into a buyers market. A wise strategy is selling a real estate property before the price plummets. Being equipped with an understanding of these several market signals and timing can spell the difference between profit and loss in today’s waning residential real estate energy.