Price Rainer joins Jimmy Burgess in this episode to talk about the four things that real estate agents should watch for to know if the real estate market is overheated.
- Pending sales are what’s happening right now and what’s happening in the future.
- Watching closed sales is kind of like living in the past.
- You are looking at a 30,60,90 day ahead view when you’re looking at pending contracts.
- As an agent, watching pending sales gives you information that is almost six months ahead of where the typical agent will be. It’s a great way for you to be able to communicate with the client and be the resource that they’re looking for.
Days on market
- We are now looking at days on the market to see if the average is moving up and down. Days-on-market is the real estate agents’ barometer of demand.
- Compared to the average days on market in 2020 which was 141 days, this year, we’re at 90 days on market through the 15th of March. There’s been a decrease of over 36% year-over-year, and historically we see a strengthening of that as we go into summer. That would indicate even stronger demand than the peak in the last cycle.
- It tells us that sellers and buyers are agreeing on value at a very fast pace, and that there’s a huge demand and limited inventory.
- If we see days-on-market creep up over several months in a row, that’s an indication that a change is coming.
- Agents can go into the MLS, look at the sales data each year going back 20 to 25 years, and view the average days on market, the average price, the average price-per-square foot, and the average number of transactions.
Average sales price
- We’re watching for growth in the average sale price, and when it starts to rapidly move up and deviate from the mean, we’ll likely see some imbalance. We need to start asking questions such as why the deviation is happening, and whether this is sustainable.
- This is the value of understanding the average meanline because it helps you identify when prices start to change.
- Statistically, you can only stray from the meanline so far before it naturally begins to work its way back down.
Where we are in the meanline
- We are 38.68% away from the meanline and the average price is $1,804,000. That’s significant. Finding this meanline tells you where we are in the cycle.
- 2004 was a good barometer to where we are now. It was the year where the number of sales and the average price moved up the quickest. The deviation then was 69.13% which was substantial, and this trend continued into 2005 and 2006. That’s when sales slowed.
- The number of transactions levelled off in 2005 while prices continued to increase. That indicated that sellers weren’t willing to come to where buyers wanted to be, which created a correction in the market.
- As the days on market increased, sellers worried they had missed their opportunity and they reduced their prices. Depending on the breadth of the market, the price-per-square can be skewed by a few sales.
- While history doesn’t always repeat itself, it’s a good way to know and gauge what will happen next.
- The other important things to watch are the total number of transactions and the price per square foot. All these are important information that can help you add value to the clients.
- There’s opportunity in abundance. Now is a great time to explain to previous clients what the market is doing. Ask them about their plans for the house.
“How to Know if the Real Estate Market is Overheated” episode resources
- Connect with Price Rainer on LinkedIn.
- Connect with Jimmy Burgess on LinkedIn and Facebook, as well as his YouTube channel.
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