Terminology for Understanding Your Real Estate Market
You must be keeping a hawk eye on the condition of the real estate market if you are planning to buy or sell a home. Real estate associations and independent publications across the USA come up with real estate data on a regular basis. If you are not familiar with real estate terminology, you will feel overwhelmed with all the information that you will find online and in print. Keep in mind real estate is a local industry, so you need to focus on factors that affect the housing market in your area. If you have basic knowledge of what factors influence a housing market, you can make decisions based on logic and intelligent research work.
Here are five of these factors you must be familiar with:
Inventory
Inventory is one of the most influencing factors in a real estate market. Inventory is basically the number of homes up for sale in a particular area. When someone tells you that inventory is ‘tight’, it means that the demand outnumbers inventory. In other words, there are more buyers in the market then the number of homes. So it will be a seller’s market. In sought-after neighborhoods in a seller’s market, there will be bidding wars on properties.
Demographics
Demographics influence home buying decision for most people. As per the definition, demographic is relating to “the structure of populations”. In the context of real estate, the term has a very broad meaning. Demographics may include strength of the school district, jobs, crime rate, average household income etc. Some of these aspects come into play when people consider buying a home in a particular neighborhood. For example, a person would like to buy a home in a good school district and a neighborhood with low crime rate. If you are buying into a particular community – let’s say for example a community of retirees, you can just look at the demographics and determine whether the area will suit your lifestyle and needs. Factors such as rate of employment and migration or average household income will indicate the health of a particular real estate market and how it may shape up in the near future.
Average days on market
If you are selling a home, you will want to come up with an appropriate asking price. If you are buying, you will want to know how to determine your offer price. In both these cases, you will want your real estate agent to do a comparative market analysis (CMA). It is a study of comparable homes that are similar in size and condition and are located in the same neighborhood. When looking at a CMA report, you will often come across data about average number of days that homes in your target area are staying on the market. This data tells you how many days it took sellers to get their homes under contract. If the number of days on market is low, it means home buyers are coming out in full force. If the days on market are getting longer, the inventory could be poor or buyers are looking elsewhere.
Median listing price
Median listing price is a figure which tells you that exactly half of homes listed in a market are above this price and exactly half are below. If a median listing price graph shows a downward trend, it means that sellers are dropping their prices in response to a softening market. In such a case, it may take longer to sell a home and buyers may have more bargaining power.
Keep in mind that median listing price is different from average sales price. The average sale price is calculated by adding all the sale prices for homes sold in a specific area within a specified time frame and dividing that total by the number of properties sold.
Distressed properties
Distressed properties include foreclosures, short sales and real estate owned (REO). The number of distressed properties in an area can have a great deal of impact on the real estate market. An unusually higher number of foreclosures or short sale listings are an indication of a sluggish market. You should check out foreclosure and short-sale data even if you are not planning to buy a distressed property.