Great real estate markets exist all around the country. If you are not investing in other markets, you are probably leaving a ton of opportunities on the table that savvy investors are scooping up… or you’re investing in the completely wrong markets to begin with.

Doing proper real estate market research is key to your real estate investment strategies.  The research will let you know your chances of making money and the soundness of your investment in a particular location, property, or city. Real estate market research is perhaps the most overlooked part for new investors and experienced investors alike. In this article, we discuss the  many ways you can go about real estate market research.

What are Real Estate Market Indicators and How Do You Use Them?

When professional real estate investors make a move they do it based on how they predict the market is going. True investors don’t just make an investment or enter a new area on a hunch… they do it because they see strong indicators for future growth based on hard facts and history.

If you are one of the people who makes their real estate decisions based on a guess… hunch… or what your friend said, you could be in for a hard lesson. Of course, anyone can make money in real estate when the market is booming in your area; however, it is the ones who know what to look for that will make huge money in real estate no matter what type of market it is.

So, what do you need to look for so you can get an edge and invest in areas when the market is right? You need to know the market indicators and what they mean. Some of this can be a little brain twisting, so I will go over these concepts in easy to understand chunks.

A Bit of Good Ol’ Economics

To understand these indicators more easily you need to know some basic economics. Remember back to that high school or college economics class? If not, maybe dust off that old text book and take a quick glance in it. I’ll try to summarize it for you as it relates to real estate.

Supply and demand. The basic theory that says the “market price of a good is the intersection of consumer demand and producer supply”. What does this mean to real estate? It means that there is a set price range that consumers will pay for real estate and builders, sellers, developers, etc. should try to supply only what consumers are willing to buy to optimize the price. In real estate, the demand sets the price. If nobody wants the real estate, it will be very cheap. If many people want the real estate, it will be higher priced and will increase (appreciate) more rapidly.

However, real estate prices and market conditions are not as simple as basic supply and demand. Things need to be researched such as why there is a high/low demand, what is driving home sales up/down?, what are people looking for in real estate?, are people making more money now?, etc. Of course, you want to look for markets that have a huge demand with a somewhat low supply for investing techniques such as flipping and wholesaling. These markets have great opportunity for growth. However, even markets with an oversupply of real estate and below average demand can yield decent profits through investing techniques such as lease options and buy and hold for rental.

Okay, back on track here. By now you might be saying, “I don’t need to know any of this because I will know when a market has gone bad or one is going strong“. You are exactly right. You will know when a market has gone bad or is going strong. But by then it may be too late. You want to know when a market will go bad and when a market will begin to boom. You want to know when the market is at its highest so you can sell off and take your profits… and when the market is at its low end just ready to pick up steam again so you can get in the market low and sell for huge profits later.

This is possible not by luck, but by following the market indicators and letting them show you the future long before most people will know.

Real Estate Market Indicators

Okay, here’s some indicators you should be familiar with. Some are more important to others, but all should be reviewed just so you know what you are looking at. Remember, when you are researching your market be sure to look at local numbers and statistics. Real estate values are always local in nature and don’t necessarily reflect what the national market looks like.

Housing Affordability – Gauges the affordability of housing based on how well a borrower making the median income can qualify for a loan to purchase a home at the median price. The NAR index revolves around the 100% mark. A rating of 100% means that the median income earner has just enough money to purchase a median priced home assuming a 20% down payment. An index number of above 100% means that the median income earner has more than enough money to qualify for a loan to purchase a median priced home assuming 20% down. A rating of over 100% is ideal for a growing market and higher supply.

Population Growth – Is population growing or shrinking? In general, a growing population means increased demand for real estate. If the average growth over the years for your town is 3%, but a new highway was just finished that goes right through your town and is driving more and more people to discover just how great of a place it is to live… I’m sure the population growth will increase greatly. Let’s say it goes up to 10%. This is a market you will probably want to consider investing in. So look for good population growth.

Employment – Employment is a very good indicator. Is unemployment at an all time high because the auto plants are shutting down (as it is in Michigan)? If so, this may not be the best time to invest because people now don’t have the money to buy real estate and/or are leaving the area in search of new work. Employment is a very good indicator that can help you see an up or down turn in real estate early on. For instance, in North Carolina the real estate market is currently undergoing a boom. Many large corporations are moving into the state and bringing many job seekers with them. Those job seekers are upper-middle income wage earners and in need of housing. In turn, the housing market in North Carolina is booming. Noticing the influx of new jobs was a leading indicator a few years back that a housing boom was in the works. Those who invested then made a mint. However, the market is still booming and investment is very strong as we speak. So… look for low unemployment rates and healthy/growing industry.

Consumer Confidence – This is just as it sounds. How confident are consumers? A real estate market with high consumer confidence should do well. A market with low consumer confidence means that consumers are somewhat unsure about the economy and possibly about their future earning potential. Low confidence often reflects in the real estate markets as a decreased amount of potential buyers, which hedges prices down. Once again, consumer confidence is measured by the NAR (National Association of Realtors). A score of over 100 means consumers are confident… under 100 means consumers are less confident and the real estate market may reflect it. A high consumer confidence often comes with low unemployment rates and a strong economy.

Home Sales – Are homes selling? The sales of homes is an excellent indicator because it is a direct answer to whether the real estate market is doing well or not. If homes are sitting on the market for 120 days and inventories are at all time highs, real estate prices will hedge down and it will become a buyers market. If average time on market is very short and inventories are low, market prices will be higher and the market is ripe for quick “in and out” deals such as rehabbing, prehabbing, wholesaling, etc. Of course, home sales is usually somewhat of a following indicator. It is the result of other leading indicators such as consumer confidence, employment, affordability, and so on.

Interest Rates – How are interest rates doing? Often times interest rates can be an indicator. Lower rates tend to result in more qualified buyers and higher real estate prices. However, rates aren’t a hugely important indicator. If rates are high but consumer confidence is also high, the rates will make less of an effect on the market. Be on the lookout for cash flowing properties when rates are low. Sometimes a percentage point can be the difference between a positive cash flow and a negative.

Of course, there are still many other real estate market indicators that can help you to “predict” real estate trends but these will get you going.

Real Estate Market Research – Choosing a City

Start your real estate market research with the U.S. Census information about a town. You want to invest in a town that is growing, especially if you are investing in income properties. It’s getting easier to do this now, with all the information available online. Just go to the official U.S. Census site at www.census.gov.

If you call the chamber of commerce, or the local department of economic development, they may have a packet of statisics they can send you too, showing population figures, employment mix, and more. These are a couple of the statistical tools and information that can help, but one of the easiest and most useful research tools, is talking.

Talking is a great way to research a town. I once called a Chamber of Commerce in one town I had my eye on. In the course of our conversation, the chairman casually commented that the city was using up the water faster than the aquifer was being replenished. I also learned that they had no back-up plan. That was enough to cross that town off my list.

When you want to know more about a town, use the phone. Use any excuse to call anyone from a real estate agent to a random resident. Ask questions about crime, whether the local government welcomes new businesses, what the climate is like. Are houses sitting for sale for a long time, or do they go fast? Where are the good and bad areas? What are the good and bad things about the town?

Prior to moving to into Midwest towns, part of our real estate market research was to call people in potential towns to see if they owned a snow shovel. If they did, we crossed the town off the list. Two different places can both get 25 inches of snow per year, but in one it stays all winter, and in another it melts before noon. Our snow shovel question told us the truth behind the statistics.

That was just a personal thing with us, of course, but talking to people can tell you much that is more directly related to investing. In fact, a good local bar can be a great place to do your research once you are in a town. Patrons will tell you what big employers are about to move in or out of the town, how fast homes are selling, whether there are gangs, and much more.

Ask which areas are improving, and which are getting worse. Listen for stories about noisy or animal-infested areas. This kind of information is important, but hard to get from the raw data. Of course, people do sometimes exaggerate, so try to verify what you hear. Still, talking to people of can be a great way to do real estate market research.

The U-Haul Migration Factor

What Does U-Haul Have to Do With Real Estate Trends?

Quite a bit actually.

Think about it. What is the main purpose of a person who uses U-Haul? To move from one place to another! Why is this important? Because U-Haul bases their rental rates on many factors, but among the factors is the amount of demand for moving vehicles to or from a specific city.

Here’s a quick little secret that is kind of cool to use from time to time. Of course, this is not always the best indicator, but it really does work. This secret helps you find out what cities people are migrating to and from, which helps you to get a better picture of the population growth before the next census comes out.

You can see these trends through the “Unofficial Migration Indicator” at www.uhaul.com. Check out the cost of a one-way rental for any given city and any other city. Lets consider the cost of renting a small truck between San Diego, CA and Phoenix, AZ. It cost $225 to rent to from San Diego to Phoenix but only $101 to bring it back! This means that there are probably twice as many people moving out of San Diego and into Phoenix than the other way around. This is basic supply and demand. So you want to make sure that the price is constant both ways or in your favor.

Kind of a cool trick to use from time to time if you are unsure about the direction of growth in a specific market. Let us know if it works for you and what you think about this tip. If you like this tip email it to your friends!
Other Real Estate Market Research Resources

A Secret to Real Estate Profits – Follow The Builder

As the real estate market cools, the profit potential of home ownership has cooled as well. Here’s a strategy called “follow the builder.”

It is relatively easy to make a profit when you sell your home if the market is rising sharply like it has been in most of the country for the last three years. It becomes more difficult when a hot market slows down. It’s very difficult to make a profit on the sale of your home when prices are falling.

Is there a way to be relatively sure you’ll make a profit when you sell your home? There is under all but the most negative market conditions. In fact, I’ve seen young, energetic couples use this maneuver multiple times when they don’t even need to move.

Follow That Builder

In many areas of the country, there are builders who build hundreds of houses each year within a fifty mile radius of each other. They build entire communities or are one of three to five builders who build entire communities around big employment centers. This present you with an important opportunity.

New Community

Builders will typically sell first phases of communities for significantly less than later phases. On one hand, they need to get the cash flow moving. On the other, it is harder to sell at high prices because the community typically consists of dirt lots and construction equipment. Put the hands together and you have a great profit opportunity.

Here is a sample video of How to Conduct Market Research
by Torry at TRb Properties in Greensboro NC.