January is always an exciting month because it helps me anticipate the year ahead. There are two January indicators that I use to predict the real estate market. One anecdotal, the other, data-driven.
By January 3rd we had already ratified three contracts. A few days later, despite the snow, we listed two homes for sale. Both went under contract with multiple offers. Needless to say, during the first week of January the phone was ringing off the hook!
This January exceeded my expectations. Based on this indicator, the spring market will arrive early. Perhaps it’s already started. I expect to see another year marked by multiple offers driving more house appreciation (see “How Does a Bidding War Work?”).
People often ask me “how’s the market?” I wanted to give our clients a more concrete answer than, “it’s hot” or “it’s cooling off”. Those answers don’t provide enough context for a seller ready to list or a buyer wondering how much to offer.
Frustrated by the lack of a single indicator, I decided to create one. We named it the “Market Strength Indicator” and it’s proved to be amazingly accurate.
In a nutshell, Homes Under Contract ÷ (Homes for Sale + Homes Under Contract) = Market Strength. This formula has helped me, and so many of our clients, quantify the actual market conditions and track them as they change over time. Here are some current examples of the formula in use.
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The converse is also true. As the ratio drops below 40%, the market is shifting to a buyers market. The lower the ratio, the better it is to be a buyer. Here are the stats for the two homes we listed in January. Both of these homes received multiple offers and sold significantly above the list price.
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Based on the data I am seeing today, prices are still going up and I anticipate a strong sellers market.
