Is there a way to know what the real estate market is going to do?
I know you came to this post to try and figure out how to know where the real estate market is headed, but unless you are some kind of prophet or psychic, there is no way to know the future of the real estate market.
While you may not be able to know the future, there are numerous ways we can analyze the past and make some educated assumptions as to the future of the real estate market. This article looks both the definition of the real estate market as well as the leading indicators that drive the real estate market up and down.
What is the Real Estate Market?
Perhaps before we dive into the specifics on analyzing and predicting the market, we should get on the same page as to what we are talking about when we use the phrase “The Real Estate Market.”
The real estate market is a phrase used to describe the overall economic state of real estate, based largely on supply and demand.
However, the very phrase “real estate market” is a bit more complicated that you might think from first hearing it. While we are referring to the general economic condition of real estate, the devil is in the details.
- Are we talking about the real estate market in a specific location? Because, as I’m sure you know, real estate prices and demand can differ wildly in different areas. Just ask someone shopping for a home in Southern California versus Iowa.
- Are we talking about the real estate market within a specific niche, like single family homes, apartments, office buildings, or hotels? After all, it might be a great time to buy a single family home, but it might be impossible to find a great deal on an apartment complex or to build a new commercial office building.
- Are we talking about the real estate market for a certain type of real estate user? After all, the market could appear very different for someone who is looking to rent a property versus someone looking to buy a property. A buyer might think it’s a great market, while a seller might think it’s terrible.
Therefore, when economists look at “the real estate market,” they could be referring to all these factors at once, but it is likely they are focusing on one aspect or a summary of the whole. Therefore, next time you hear the phrase “the strength of the real estate market” or something similar, ask yourself “what are they really talking about?” It would be silly to say “the real estate market is strong” without any additional qualifiers.
- Where is it strong?
- For whom is it strong?
- For what kind of real estate is it strong?
That said, the real estate market, as mentioned in the definition above, is based on the supply and demand of real estate, so no matter what niche and what location and to what user, there are patterns that we can analyze — and hopefully predict within that niche.
These patterns form what you’ve likely heard before: the real estate cycle.