The Two Laws of Real Estate
We all know the law right? When it comes to real estate the 3 most important things to focus on are; 
- location
- location
- location
What about the second law? Everyone knows that;
- timing
- timing
- timing
Actually
everyone doesn’t know the second law. In fact I have investors tell me
all the time how they have the bad habit of buying high and selling
low. Sad but true, sometimes we make mistakes that can be avoided.
The
market actually does present us with clues. Of course clues aren’t
hard set rules, but they are indicators that have been tested over time
and found to have a certain amount of truth to them.
Leading indicators (12-18 months prior - signal market is at bottom)
- Blood in the streets i.e. discounts available, dump & run builders
- Discounting & foreclosures
- Press "horribalizes" data
- Rising employment
- Declining supply
- Low interest rates
- Investigation & indictments
As a market moves out of a slump and things begin to look more "normal" or "neutral" there are indicators that
will signal this happening.
Coincident Indicators
- Rising demand
- Declining Supply
- Declining vacancy
- Rising rents
- Appreciation comes back
- Multiple contracts common
- Jail Terms
Lagging Indicators (signals to STOP buying and prepare to sell)
- Scarcity of supply
- Double digit appreciation (not sustainable)
- Multiple contracts normal
- Media euphoria
- Greed - investors flood market
- Builders start to oversupply
- "Amateur Hour" - the Greater Fool Theory
Know when to hold ‘em, know when to fold ‘em!
When it comes right down to it, timing is everything, particularly in real estate. Serious investors study the 
market
trends and know when to get in and know when to stay put or get out.
Amateurs have a way of over inflating a market to an extent that takes
a long time to come back. Reviewing the appreciation rates over the
years, one can see the ups and downs as recorded by the Office of Federal Housing Enterprise Oversight .
What do you see happening in your market?
The
Denver metro market is experiencing parts of both Leading and
Coincidental Indicators. There’s been a lot of "blood on the
streets". Builders have pulled back on inventory. Existing inventory
has incentives for buyers and some offer additional incentives for
agents to sell. Foreclosures are up, the press loves to bar-be-que
real estate daily. Interest rates were increasing for awhile, but are
now trending down…ever so slightly. Hearing news about
investigations and indictments is the best part. The bad guys need to
get put away.
The housing supply is not going down, but sales are
consistent. We continue to sell the same (or nearly) amount of units
as this time last year. Wise investors are in our market now, they
will be picking up the slack.
Coincidental Indicators in the
Denver Metro market are declining vacancies and rising rents. We are
seeing appreciation in some markets. Many markets have not declined,
they have held their own. The lovely jail terms for some are
occurring, with more, many more to follow.
Denver and Colorado tend to run counter-cyclical to the rest of the country. We will be putting out of this flat mode soon.
What’s a Homeowner/buyer to do?
Buying
right now is a good thing to do. If you are a seller and don’t have to
sell, you may want to consider waiting awhile. If you must sell, the
good news is, you may make out well enough on the "other end" to
compensate for any loses on the sale. The most important thing for a
seller to do right now is to be absolutely certain the home is priced
right for this market and it shows like a model. Homesellers are
getting lost in the crowd.
<Note: My notes and
inspiration for this blog are from the NINJA Leadership Class by Larry
Kendall of The Group, Fort Collins. I highly recommend this class as
any of the NINJA classes now being taught by the Residential Sales
Council>
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3 Responses to “ The Two Laws of Real Estate ”
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This site brought to you by Kristal Kraft, a licensed Colorado Real Estate Broker
The
KK I always learn from your posts. The Salt Lake market sounds very similar to Denver with the exception of sales volume. Since January we’re 25-40% lower in units sold for all municipalities in the county. Areas with an avg price under $250k are selling best. Fortunately values are holding strong and some munis are still on the rise.
It’s a great time for a serious investor to shop and pick up a deal.
Again, thanks for the education.
This was a great post Kristal, made my Feed Bag post. Well done.
How about: neighborhood, neighborhood, neighborhood?