2019 Housing Market | Leading and Lagging Indicators
2019 Housing Market | Leading and Lagging Indicators
2019 Housing Market | Leading and Lagging Indicators

Casey, Ryan and Tyler explain how long-term success in real estate investing requires knowing the leading market indicators and combing that data to maximize your profit over any time horizon.  Discussing the top three housing market indicators (new house permits, new house starts, new house sales) as well as many others, they illustrate the importance of stacking the data to plan for all market conditions.

DEFINITION OF A MARKET: 
-Any structure that allows buyers and sellers to exchange any type of goods, services and information. General condition of the real estate market
TOP THREE MARKET INDICATORS:  PERMITS, STARTS, SOLDS
-Number of permits issued
-Number of new housing starts
-Number of houses sold
These indicators show where the market will be going.
WHERE TO FIND THIS DATA?  GOOGLE IT
-Census.gov.  Or google to find the data in your specific market.  The point is to use the data to your advantage.  The data are just tools to help you understand what is going on in the future of the market.
ANECDOTAL VS EMPIRICAL DATA
-Anecdotal:  Evidence collected in a casual or informal manner and relying heavily or entirely on personal testimony.
-Empirical:  Information received by means of the senses, particularly by observation and documentation of patterns and behavior through experimentation
-In Real Estate, the anecdotal information is the “buzz” that everyone is talking about.  For example, a housing bubble.  Whereas, empirical information is statistical information confirming or refuting that “buzz.”
MEDIA OPINIONS CAN INFLUENCE MARKETS

THE 3 LEADING MARKET INDICATORS:  Building Permits, Housing Starts, New House Sales

-Building permits (Gray)
-Housing Starts (Blue)
-New House Sales (Yellow)
—Price (Red)
–The 3 leading indicators essentially predict the housing
Prices.  The red line follows The shape of the other indicators,
but it lags behind them.
IT IS CRITICAL TO STACK OR OVERLAY THE DATA
-Using just one metric can be misleading.  Stacking the data
gives a clearer picture.
BUILDING PERMITS:  LARGER MSA PERMIT NUMBERS

-The table shows the total number of permits, number of single family and number of multi-family in some larger MSAs.
OTHER MARKET CONDITION INDICATORS
-Population growth or decline
-Number and type of job postings
-Job growth versus the population
RESEARCH IS CRITICAL TO MID AND LONG-TERM SUCCESS IN REAL ESTATE INVESTING
-It is important to understand the future market conditions to plan your exit strategy, even if you are buying a flip.
STACKING DATA TO REFINE YOUR NICHE:  THE MORE DATA, THE BETTER
Michael Quarles Podcast. (https://michaelquarles.com/podcasts/).  When investing in an area, don’t waste your marketing dollars
-When Looking at a specific zip code in which to invest, make sure it can sustain your activity
—Population of 250,000 or more
—Look at Interest rates according to current PITI (lending rates)
—Rental Market
—Look at Total number of single-family rentals in a zip code
—You want from 1,000 – 10,000 within that zip code
—Out of the number of single-family rentals, look at number of foreclosures (what percentage of the single-family rentals are in foreclosure)
—How many of those did not get auctioned and are currently bank owned (REO)
—Take that data, see which have 30% equity
—Consider DOM
—Look at median sales price
Stacking this data let’s you know an additional exit strategy if the property does not sell.

STOCK MARKET INDICATORS:  S&P 500
-Building permits (Gray)
-Housing Starts (Blue)
-New House Sales (Yellow)
-S&P (Light Blue)
–The housing market follows the leading Indicators closer than
it follows the S&P.
–The stock market is the expression of market sentiment.

 

 

THE STOCK MARKET IS THE EXPRESSION OF MARKET SENTIMENT
THE BEST LEADS ARE CURATED FROM STACKED DATA
A BUSINESS HAS A PLAN FROM DAY ONE
-Data is imperative to a strategic business plan.
HOMEBUILDER FUNDS SHOW THE DEMAND FOR NEW CONSTRUCTION
-XHB tracks the stock price of home building companies within
the US.
-Almost a one to one correlation.  Stock that make up this
exchange traded fund rise and fall with supply and demand
issues in the housing market.
-Permits (Gray)
-Housing Starts (Blue)
-New House Sales (Yellow)
-XHB Fund (Green)

 

 

MARKET LIQUIDITY:  THIS DETERMINES WHETHER OR NOT THE BANK CAN LEND MONEY
-House prices (Red Line) have moved inversely to the yield curve
since the 2000 Dot-Com bust.   -At this point, the only thing
pushing house prices up is the availability of credit for buyers.
If it is not profitable for banks to lend, then who is going
to buy all the houses???????

 

LUMBER COMMODITY PRICES LAG BEHIND HOME PRICES
-Lumber prices fall after house prices


IMPORTANT DATA STACK:  PERMITS, STARTS, SALES
GOOD MARKETS CREATE BAD HABITS IN INVESTORS
-New investors get used to the market always growing, which can create bad habits.
IF YOU HEAR ABOUT A MARKET CRASH, ASK THESE 3 QUESTIONS
-Where is the market strong?
-For who is it strong?  (Buyers, Sellers, Renters)
-For what kind of real estate is it strong?  (Rental, Buy & Hold, Wholesaling, Listing)
 

QUIZ
1.What are the 3 leading market indicators? .
2.What is anecdotal evidence?
3.What is empirical evidence?
4.What type of stock market funds would be good indicators of real estate market conditions?
5.What specific housing related commodity price lags behind house prices?

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