Norada Real Estate Investments

Is 2023 a Good Time to Buy an Investment Property?

by

Is 2023 a Good Time to Buy an Investment PropertyWhen is It a Good Time to Buy an Investment Property?

Investment properties can be an excellent way to build long-term wealth and generate passive income. However, timing is a critical factor to consider when buying an investment property. Purchasing at the wrong time can lead to reduced returns, lower rental yields, and potential losses. So when is the best time to buy an investment property?

There is no one-size-fits-all answer to this question, as the optimal time to buy an investment property varies depending on different factors such as location, market conditions, and personal circumstances. However, here are some general tips that can help guide you in making the right decision.

Firstly, consider the current market conditions. Typically, the best time to buy an investment property is when the market is experiencing a slowdown or a dip in prices. During a downturn, sellers are often more motivated to sell, and properties may be available at a lower price, making it an opportune time to make a purchase. In contrast, if the market is experiencing a boom, you may face stiffer competition and higher prices, making it more difficult to find a good investment opportunity.

Another factor to consider is the interest rate environment. When interest rates are low, it can be an advantageous time to take out a mortgage as you may be able to secure a lower interest rate and reduce your borrowing costs. However, if interest rates are high, you may want to hold off on purchasing an investment property until they come down, as higher rates can increase your borrowing costs and reduce your potential returns.

In addition to market conditions, personal circumstances can also play a role in deciding when to buy an investment property. For example, if you are in a stable financial position and have a large down payment, you may be able to purchase an investment property even during a market upswing. On the other hand, if you are just starting out, it may be better to wait until you have more savings and a better understanding of the market.

Location is another essential factor to consider. Different markets have unique cycles, and what may be the best time to buy in one area may not be the same in another. Therefore, you need to research the local real estate market and determine the best time to buy in that specific location. For example, if a particular area is undergoing significant infrastructure development or regeneration, it may be an ideal time to invest, as property values could rise due to increased demand.

Lastly, consider your investment goals and strategy. If you plan to hold the property for the long term, the timing of your purchase may be less critical, as the property's value is likely to appreciate over time. However, if your investment strategy involves flipping properties for a quick profit, it may be more critical to time your purchase correctly.

Is 2023 a Good Time to Buy an Investment Property?

As discussed above, the best time to buy an investment property is a combination of various factors, including the current market conditions, interest rates, personal circumstances, location, and investment goals. While there is no perfect time to buy an investment property, by considering these factors and doing your research, you can increase your chances of making a successful investment. Remember, the key is to be patient, do your due diligence, and make an informed decision.

Now that we’ve looked at some of the factors that can impact the best time to buy an investment property, let's take a closer look at the current market and ask the question: Is 2023 a good time to buy an investment property? First, it’s important to note that the real estate market is highly cyclical, with ups and downs that can be influenced by a range of factors, including interest rates, job growth, and the overall health of the economy.

While it’s impossible to predict exactly what the market will do in the coming year, there are some indicators that suggest it could be a good time to invest in real estate. One of the key factors that could make 2023 a challenging time to buy an investment property is the current state of interest rates.

During the COVID-19 pandemic, mortgage interest rates reached record lows in 2020 and 2021 due to emergency actions taken by the Federal Reserve. However, the situation changed in 2022 as inflation increased significantly, causing mortgage interest rates to rise to their highest levels since 2002. High-interest rates mean that it may be more expensive to finance an investment property. This could be especially challenging for first-time investors who may have less capital to put down upfront.

Additionally, many experts predict that the economy will continue to recover in the coming year, which could lead to job growth and increased demand for rental properties. This, in turn, could drive up rental prices and make investment properties more lucrative.

Another factor to consider is the potential impact of inflation. While inflation can be a concern for many investors, real estate has historically been a good hedge against inflation. However, in 2023, with inflation still high, the returns on investment properties may not be as high as expected.

Of course, there are also risks to consider when investing in real estate, especially in a market that is still recovering from the impacts of the pandemic. For example, it’s possible that a sudden rise in interest rates could make it more expensive to finance an investment property, and job losses or other economic factors could impact demand for rental properties.

It’s also important to note that the current state of the real estate market can vary greatly depending on the location and type of property you’re interested in. For example, some areas may be experiencing a high level of competition and bidding wars, while others may have more properties available at a lower price point.

So, what does this all mean for investors who are considering buying an investment property in 2023? Ultimately, the decision to invest in real estate should be based on a range of factors, including your personal financial situation, investment goals, and the specific market conditions in your area.

If you’re a first-time investor or have limited capital to invest, the potential for rental price increases could make 2023 an attractive time to invest. However, it’s important to do your due diligence and work with a reputable real estate agent who can help you navigate the market and find the best properties for your investment goals.

For more experienced investors with a larger capital base, it may be worth waiting for market conditions to improve before investing. This could mean waiting for interest rates to fall, which could lead to higher property prices and less competition or focusing on areas where the market is less competitive and there are more opportunities for value-add investments.

In any case, it’s important to approach investing in real estate with a long-term mindset and a focus on building wealth over time. By carefully considering market conditions and working with experienced professionals, investors can make informed decisions that set them up for success in the years to come.

How to Reduce Mortgage Payments on Your Investment Property in 2023?

Getting a mortgage is one of the most common ways to finance an investment property. However, the requirements and terms of the mortgage may be different from those of a mortgage for a primary residence. Investment property mortgages typically require a higher down payment and a higher credit score compared to mortgages for primary residences. Lenders may also charge higher interest rates and fees for investment property mortgages.

Additionally, the income from the investment property is usually considered part of the mortgage qualification process. The lender will typically require documentation of the expected rental income and expenses associated with the property to determine the borrower's ability to repay the loan. If you're looking to purchase an investment property in 2023, there are several ways to reduce your mortgage payments.

First, consider putting down a larger down payment. This will lower the amount you need to borrow, which will in turn lower your monthly mortgage payment. Additionally, if you're able to pay off a significant portion of the loan upfront, you may be able to secure a lower interest rate on your mortgage.

Another option is to make additional payments towards the principal of your mortgage on a monthly basis. This can help to reduce the amount of interest you pay over the life of the loan and ultimately lower your monthly payment. Alternatively, you may consider making one-time, lump-sum payments toward your mortgage.

When it comes to choosing a mortgage lender, you'll want to consider all of your options, including banks, credit unions, online lenders, and mortgage brokers. Do your research to find a lender that offers competitive rates and terms that work for you.

To calculate your mortgage payments on investment property, you can use a mortgage calculator. This tool will allow you to input the purchase price, down payment, interest rate, and other important information to determine your monthly payments.

It's important to remember that when purchasing an investment property, there may be additional expenses to consider such as property taxes, insurance, and potential homeowner association fees. You'll want to factor these costs into your calculations to get an accurate picture of your total monthly expenses.

In conclusion, while there is no single answer to the question of when the best time to buy an investment property is, there is a range of factors that can impact the decision. For investors considering buying in 2023, the potential for rental price increases and the resilience of real estate as an asset class may make it an attractive time to invest. However, it is important to carefully evaluate the local market conditions, property-specific factors, and personal financial situation before making any investment decisions.

CoreLogic House Price Index Up 6.9%: Annual Forecast is Negative

by

House Price IndexUS Home Prices Rose By 6.9% in December 2022

CoreLogic, a data and analytics company, released its CoreLogic HPI report on February 7, 2023, with analysis through December 2022 with forecasts through December 2023. The report is designed to provide an early indication of home price trends. Home prices nationwide, including distressed sales, increased year over year by 6.9% in December 2022 compared with December 2021.

On a month-over-month basis, home prices declined by 0.4% in December 2022 compared with November 2022 (revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results).

The CoreLogic HPI Forecast indicates that home prices will decrease on a month-over-month basis by 0.2% from December 2022 to January 2023 and on a year-over-year basis by 3% from December 2022 to December 2023.

Only Nine States Put Up Double-Digit Gains in December

The effect of rising mortgage rates on housing demand in the United States became evident in December 2022, as the annual home price growth dipped to 6.9%, down from a series high of 20% appreciation in April. The latest US CoreLogic S&P Case-Shiller Index showed that only nine states had double-digit year-over-year price increases in December, compared to 48 states in April.

Despite a low national unemployment rate of 3.5% in December, layoffs may be impacting housing demand in expensive metropolitan areas, particularly those heavily dependent on the tech industry. San Francisco and Seattle posted significant home price deceleration in November. Although the pandemic-induced migration to suburban, exurban, and rural areas may be slowing down as the workforce gradually returns to offices, Idaho was the only state to register an annual home price loss in December (-1%).

“The continued slowing of home prices at the end of 2022 reflects weaker housing market demand, primarily caused by higher mortgage rates and a more pessimistic economic outlook in general. But while prices continued to fall from November, the rate of decline was lower than that seen in the summer and still adds up to only a 3% cumulative drop in prices since last spring’s peak.

Some exurban regions that became increasingly popular during the COVID-19 pandemic saw prices jump and affordability erode at the time, but these areas are now seeing major corrections. And while price deceleration will likely persist into the spring of 2023, when the market will probably see some year-over-year declines, the recent decrease in mortgage rates has stimulated buyer demand and could result in a more optimistic homebuying season than many expected.”

– Selma Hepp, Chief Economist for CoreLogic

Nationally, home prices increased 6.9% year over year in December. Idaho was the only state to post an annual decline in home prices. The states with the highest increases year over year were Florida (15.3%), Vermont (13.5%), and South Carolina (12.2%).

These large cities continued to experience price increases in November, with Miami again on top at 19.5% year over year.

HPI Top 10 Metros Change
Source: CoreLogic

Top Markets at Risk of Home Price Decline

The CoreLogic Market Risk Indicator (MRI), a monthly update of the overall health of housing markets across the country, predicts that Salem, OR is at very high risk (70%-plus probability) of a decline in home prices over the next 12 months. Bellingham, WA; Bremerton-Silverdale, WA; Crestview-Fort Walton Beach-Destin, FL and Olympia-Tumwater, WA are also at very high risk for price declines.

US CoreLogic S&P Case-Shiller Index Growth Rate Cools Further in November, Up by 7.7%

The housing market conditions in the US worsened at the end of 2022, as home price growth declined rapidly. The increase in mortgage rates from 3% to 7% wiped out about 30% of homebuyers' purchasing power, leading to a decline in demand and a drop in new listings on the market, causing inventory to reach an all-time low.

However, the fall in mortgage rates in December brought renewed optimism among buyers, which could lead to a busier spring homebuying season in 2023 if rates continue to trend lower. According to the CoreLogic S&P Case-Shiller Index, home prices posted a 7.7% YoY increase in November 2022, marking the seventh straight month of declining annual home price gains.

The index also indicated that home prices are expected to decline further in 2023, with regional declines expected in metro areas that saw significant price growth during the pandemic, such as Las Vegas and Phoenix. The 10- and 20-city composite indexes also showed a decline in November, with the 10-city composite index now 38% higher compared to its 2006 peak and the 20-city composite up by 46%.

Miami had the strongest annual home price growth among 20 tracked markets for the 4th consecutive month, with an 18.4% increase in November, although it was down from October's 21% growth. Tampa, Florida ranked second with a 16.9% year-over-year growth in November, declining from 20.5% in October.

Other cities like Atlanta, Charlotte, and Dallas also posted double-digit annual increases in November. San Francisco posted its first annual decline since the onset of the pandemic, with a 1.6% decrease in November. All 20 metros saw decelerating annual gains in November with Tampa and Phoenix posting the largest monthly price drops.

Deceleration in Year-Over-Year Home Price Growth Seen in All 20 Metros
Source: CoreLogic

Compared with annual gains recorded last November, all metros posted weaker price gains, averaging a 12-percentage-point slower rate of appreciation. Phoenix showed the largest decline in home price growth compared with November 2021, cooling by 26 percentage points. Seattle followed, with a 22-percentage point decrease.

All pricing levels show diminishing price growth. November saw 8% low-tier growth, 6.4% middle-tier growth, and 7.2% high-tier growth. Compared to the spring 2022 peak, annual gains in the upper tier fell by 3.1 percentage points, while low-tier growth surged again. Demand for more costly properties exceeded the low-tier price rise from November 2021 to July 2022.

At this juncture, investors, owner-occupied buyers, and a persistently low inventory of homes for sale may be pressuring the low tier's price slowdown. At the end of 2022, CoreLogic data showed that investors of all sizes bought around 100,000 houses per month, while new listings slowed dramatically. Monthly price tier and location appreciation comparisons show demand fluctuations across the nation.

Most pricing groups in all metros saw monthly advances fall from October to November, except for New York's low tier, which rose marginally. Compared to epidemic boomtowns like Phoenix, Northeast and Midwest locations that fared worse are witnessing renewed buyer desire and home price resilience.

The pandemic hit New York hard, and the bottom tier's relative strength may be a rebound impact from 2021's lower pricing. Though unseasonally adjusted, low-tier housing prices fell 1% monthly. Average high-tier and middle-tier prices fell 1% month over month.

About CoreLogic

CoreLogic is a leading global property information, analytics, and data-enabled solutions provider. The company’s combined data from public, contributory, and proprietary sources includes over 4.5 billion records spanning more than 50 years, providing detailed coverage of property, mortgages and other encumbrances, consumer credit, tenancy, location, hazard risk, and related performance information.

The CoreLogic HPI™ is built on industry-leading public record, servicing, and securities real-estate databases and incorporates more than 40 years of repeat-sales transactions for analyzing home price trends. Generally released on the first Tuesday of each month with an average five-week lag, the CoreLogic HPI is designed to provide an early indication of home price trends by market segment and for the “Single-Family Combined” tier, representing the most comprehensive set of properties, including all sales for single-family attached and single-family detached properties.

CoreLogic HPI Forecasts™ is based on a two-stage, error-correction econometric model that combines the equilibrium home price—as a function of real disposable income per capita—with short-run fluctuations caused by market momentum, mean-reversion, and exogenous economic shocks like changes in the unemployment rate.

Source: https://www.corelogic.com/category/intelligence/reports/home-price-insights/

What Happens to Real Estate During Inflation?

by

Real Estate During Inflation

What Happens to Real Estate During Inflation?

Simply put, inflation is an extended period of rising consumer prices across the board in a given economy. When inflation occurs, the purchasing power of money decreases because each dollar can only buy less and less. Economic factors, such as inflation, have a direct impact on the real estate market. As with other goods and services, real estate prices may rise alongside inflation.

This is due to the fact that real estate is commonly considered a safe and stable investment that can be used to combat the effects of inflation. Inflation, however, can have unfavorable effects on property values in some instances. To give one concrete example, rising interest rates as a result of high inflation can make it harder for people to borrow money to invest in real estate. A drop in demand can lead to cheaper homes as investors and homeowners sell off their properties.

Moreover, high inflation can reduce consumer confidence, which in turn can reduce demand for real estate. Inflation can have an effect on real estate prices both directly and indirectly. For instance, developers may produce fewer dwelling units if inflationary pressures raise construction costs. This can cause a shortage of housing, which drives up prices.

Inflation can have a negative impact on the real estate market, but the real estate also presents a good investment opportunity during inflationary periods. By purchasing real estate and keeping it as an investment, investors can profit from price appreciation. They hope to make a profit by selling the property once prices have increased. Inflation can actually increase rental income, giving property owners a nice passive income boost.

Inflation can have both positive and negative effects on the real estate market. The rise in real estate prices brought on by high inflation can be a good investment opportunity, but it can also cause a drop in demand and make it harder for people to get mortgages. Making wise real estate investments requires careful consideration of the economy as a whole, including inflation.

Should You Buy Real Estate During Inflation?

Depending on the economy's health, inflation can have a significant upward or downward effect on home prices. Real estate prices tend to rise in tandem with inflation, making it hard to decide whether or not to invest during this time. However, there are a number of things to think about that will allow you to make a more educated choice.

As a result of inflationary price increases, real estate can be an attractive investment vehicle. Due to this, real estate can be a wise choice for investment, particularly if you intend to keep the property for a while. Inflation can boost rental income, making it a good source of passive income.

Buying a property during an inflationary period is not without risks, though. To give one concrete example, rising interest rates as a result of high inflation can make it harder for people to borrow money to invest in real estate. When demand for real estate drops, prices often follow. Moreover, high inflation can reduce consumer confidence, which in turn can reduce demand for real estate.

When deciding whether or not to invest in real estate during inflation, you should give careful consideration to your personal financial situation. Purchasing real estate during inflation can be a wise investment if you have a stable income and low debt levels. However, if your financial situation is precarious, it may be prudent to postpone buying property until inflation has leveled off.

Finally, it is up to each individual to decide whether or not inflation is a good time to buy real estate, taking into account their individual financial situation and investment objectives. Although real estate can be a good investment option during inflationary times, it is essential to weigh the benefits and drawbacks thoroughly before making a final decision.

Why is Real Estate Considered a Good Hedge Against Recession?

For a variety of reasons, real estate is often seen as a safe investment that can help cushion financial losses during economic downturns. To begin, the value of the real estate is cushioned from economic downturns more than stocks, bonds, and commodities. Real estate's value is less susceptible to market swings because it is a physical asset that satisfies a fundamental human need.

And secondly, rent from real estate can be a reliable stream of income with minimal effort on your part. A recession can make it difficult to find work, but rental income can help property owners make ends meet. As a result, your financial situation may be less severely impacted by a downturn. As a third benefit, real estate has the potential to increase in value over time. Despite occasional dips, real estate prices generally head upwards in the long run.

Therefore, it may be possible to make a profit on real estate purchases made during a recession and subsequently resold when the market has improved. Real estate also offers the possibility of tax benefits, such as deductions for mortgage interest and depreciation, in addition to the benefits mentioned above. As a result, the total cost of ownership can be decreased, which is especially helpful in tough economic times.

Real estate, in sum, is viewed as a good hedge against recession because it provides a tangible asset that is less susceptible to market fluctuations, a stable source of passive income, long-term capital appreciation, and potential tax benefits. Because of these factors, real estate is an excellent choice for investment during times of economic instability. However, before making any real estate investment decisions, it is essential to carefully consider your own financial situation and investment goals.

Real Estate Economics: How Real Estate Markets Work?

by

Real Estate EconomicsYou do not need a degree in economics to become market-literate, just an understanding of how local real estate economies work, fluency with the terminology, and good sources for local data on sales, prices, values, and inventories. Add your professional expertise and your skilled observations of the latest trends in the charts and numbers and you have a winning formula.

Real Estate Supply and Demand Analysis

Ideally, real estate markets follow the laws of supply.  If the supply of homes for sale is greater than demand, the market will put pressure on prices to fall until supply and demand come into as because buyers take advantage of bargains and fewer sellers list their homes Homes will take longer to sell.

Should the supply of homes for sale be too small to meet demand, homes will sell faster, and prices will tend to rise until more sellers list their homes and buyers wait for better prices. So the numbers of homes for sale, or inventories, and demand are the two keys to understanding how sales and prices are behaving and will continue to act shortly.

Demand is driven by changes in local household population; local income and employment levels; interest rates that make mortgages more or less expensive; accessibility of mortgage credit; and local rents.  Supply is created by move-up buyers, who also contribute to demand by buying a new home; by new home construction; by seniors and other owners who sell to become renters; by owners who relocate to another market; and by deaths.

In the real world of real estate, the rules of supply and demand do not always work well.  Sellers sell for many reasons, and most of them do not have much to do with higher prices—relocation, family and financial crises, they owe too much on their existing mortgage, or they need more space or to downsize now no matter what prices are doing.

Buyers often can’t take advantage of lower prices because they do not have the down payment, or they cannot sell their current to move up to a larger one. It is no wonder that the average American family sells a home only once every nine years. Because of the difficulties buyers and sellers have responded to market opportunities such as rising prices or a plentiful selection of homes for sale, real estate is considered a less “liquid” asset than securities, collectibles, precious metals, and most other investment options.

The Fine Points: Why Real Estate is Different

Illiquidity is just one of several significant ways that make real estate markets work differently than other markets. Here are some others.

Seasonality: Home sales vary by season, especially in northern climates where inclement weather makes it difficult to sell a house.  Sales rise in the spring and decline in the fall.  Therefore, comparing sales and prices on a month-to-month basis can be misleading. That is why home sales and prices are either “seasonally adjusted” with mathematical formulas that account for seasonal changes or are compared on a year-over-year rather than a month-over-month basis.

The Housing Ladder:  Only in real estate does a sale create a new buyer, as it does with move-up buyers.  Real estate works like a ladder.  As seniors downsize or die, they create new supplies for move-up buyers, who in turn create new supplies for first-time buyers.  That is why first-time buyers are so important; the housing ladder does not work unless first-time buyer demand is high enough to absorb the houses that move up buyers want to sell so that they can then buy a larger home.

Financing: About half of all homeowners have a mortgage and 86 percent of recent buyers financed their home purchase with a mortgage.  The ability to qualify for a mortgage and the amount a mortgage will cost the borrower have an enormous impact on housing demand.  Factors like interest rates, lending standards that set requirements for income, debt and credit history, and the availability of mortgage credit can affect demand for homes by making it easier or harder for buyers to get financing.  Currently, about three-quarters—74.2%—of applications for mortgages to buy a home are approved.

Hyper-locality:  There is no such thing as a national or a state-level real estate market.  Real estate is the most local of investment assets, yet market trends are most often reported and discussed regarding the nation as a whole, states, or MSAs.  These are not markets; people buy homes on a house-by-house or neighborhood-by-neighborhood basis. The numbers you see on the national news are mathematical calculations of millions of homes and thousands of monthly transactions; they are several steps away from what’s going on in a local market.

Local market conditions can vary greatly, even within a metropolitan area.  The factors that impact local values—transportation, retail, schools, taxes, economic conditions, open spaces, location, municipal services, safety, and lifestyle—are local, even hyper-local.  Thorough knowledge of hyper-local market trends is an essential competency that distinguishes top agents and brokers.  However, market-level data on a hyper-local level is harder to obtain than so-called “national” data.

Price is Different from Value:  The adage that “something is worth what someone will pay for it” doesn’t apply to real estate.  Instead, a home is worth what an appraiser says it is.  Why? Because nearly nine of ten homes are financed by a mortgage and lenders will lend no more than what an appraiser says a house is worth.

If the contract price is higher than the appraised value, the buyer, and/or seller must figure out how to make up the difference or the deal is dead.  Appraisal issues kill about 11 percent of sales today.  One way to think about the difference between price and value is longevity.  Prices reflect temporary shifts in supply and demand—like tight inventories or heightened demand due to low-interest rates.

Values are more long-term and change slower than prices.  However, price changes DO change values over time because appraisers use prices or sales of comparable homes during the previous six months to make an appraisal.  As more homes in a market are appraised, recent sale prices will change values.

Every house has a unique value and responds differently to market changes.  In today’s market, sellers should price their homes very carefully and research local conditions to avoid overpricing that could lead to an extended time on the market in case prices do decline.  Buyers and investors should be careful to avoid buying a home that is on the verge of losing value.

Determining an individual home’s value is difficult.  The “find your home’s value” calculators can be highly inaccurate, and they often mislead buyers and sellers.  New “Big Data” databases with hard sales data from millions of homes are more accurate but like all computerized valuations, they may not reflect improvements and conditions.

Medians and Averages: A median is that number where half the numbers are lower, and half the numbers are higher. In the case of real estate, that means that the median is the price where half the homes sold that month were cheaper, and half were more expensive. An average is the total of those numbers divided by the number of items in that set. An “outlier”, or a value much higher or lower than the others in a group, changes the average but not the median.  Medians are preferred in real estate because they give a better idea of where the middle of the market lies.

How to Do Real Estate Market Analysis in 2023?

by

Real Estate Market Analysis

Real estate market analysis involves evaluating the current market conditions and trends in a particular geographic area to determine the demand and supply of properties, as well as the overall economic conditions that may impact the real estate market.

You can gain a better understanding of market conditions and make informed investment decisions by conducting a comprehensive real estate market analysis. Because market conditions can change over time, it is critical to update your analysis on a regular basis.

Many investors frequently make the often damaging (or fatal) mistake of buying a property with little to no consideration of the neighborhood and market the property is in. This can be one of the greatest mistakes an investor can make because if you buy in the wrong neighborhood or market, you’ll be stuck with the problems that come with it because of its location. Your only option may be to sell the property at a loss.

I’ve literally seen dozens of investors buy nice rental properties that would impress most people, but they happened to be in distressed neighborhoods with blighted properties, and in depressed markets with high unemployment and a decreasing population. It is more important to be concerned about the overall market health and its future prospects than it is to get lost in the potential cash flow and other “numbers” on the property.

They’re all important of course, but purchasing based solely on the property without considering the bigger picture of the market and neighborhood is like trying to sail a ship against strong headwinds. If you don’t start with the right market and neighborhood, over time you will experience more tenant turnover, shorter lease terms, increased late payments/defaults, and decreased or negative appreciation.

How to Do Real Estate Market Analysis in 2023?

Here are the steps to conduct a real estate market analysis:

LOCAL ECONOMICS

There are several local economic factors you’ll want to consider before choosing a market to invest in. Evaluate factors like unemployment rates, population growth, and economic indicators to determine the overall health of the local economy. This will help you understand how the local economy is affecting the real estate market.

Employment Trends

Employment is one of the most important economic factors related to the current and future health of a market. Simply put, people who have jobs have the income to afford to pay their rent. Those that don’t will be able to afford to pay their bills, and may be forced to move to find new employment which often involves moving to another city. The Bureau of Labor Statistics (BLS) and the local chamber of commerce are good places to start for local employment data and trends.

Net Migration

Study the demographic trends in the area, including population growth, age distribution, and household income. Understanding the demographics of the area can give you a better understanding of the demand for certain types of properties. Are more people moving into the market or moving out? This has a major impact on the market as demand for housing increases and decreases based on the total population in a given market.

Take for example the Dallas, Texas market:

Texas has joined California as the only other state in the nation with a population of more than 30 million, according to new data from the U.S. Census Bureau. Texas' population has grown by 470,708 people since July 2021, the most in the country. Texas consistently ranks first in the bureau's annual population updates.

Net domestic migration accounted for roughly half of that growth (the number of people moving to Texas from other states), with the other half split almost evenly between net international migration and natural increase (the difference between births and deaths).

According to The Texas Demographic Center, 10 counties in Texas are projected to have 1 million residents by 2060. Harris County, home to Houston, will remain the most populous county by far, followed by Dallas, Bexar, Tarrant, Travis, and Collin counties, all of which already have more than 1 million residents. Denton County’s population is projected to hit 1 million in 2027, followed by Fort Bend County in 2035, Hidalgo County in 2041, and Williamson County in 2058.

This increased population growth creates demand for more local housing which helps push property values and rental rates up, in addition to an ongoing need for good residential housing stock. Be sure to put yourself on the right side of the trend.

Industry Diversification

A market with a diversified range of industries offers less market volatility in harder economic times or recessions. A market driven largely by one or two industries tends to be affected harder than more diversified markets and takes longer to recover afterward. Although many investors do well in “one trick pony” markets, it’s best to mitigate your market risk by focusing on markets with a broader employment base.

HOUSING MARKET

It’s good to know the condition of the housing market you’re looking to invest in. Evaluate local zoning laws. Research the local zoning laws to understand any restrictions or regulations that may impact the housing market. For example, zoning laws may limit the type of properties that can be built in certain areas.

Look at current market trends, including any changes in property values and sales volume, to get a sense of how the market is changing. Based on the information gathered, draw conclusions about the overall health of the market, the demand for different types of properties, and any potential risks or opportunities in the market.

Market Conditions

Are you in a buyer’s market or a seller’s market?

A buyer's market is what you get when there's more supply than demand. There are more people looking to sell houses than there are people looking to buy houses. In a buyer's market, sellers may have to accept a lower price than they want to sell their property and may have to resort to providing incentives. This is the ideal situation for buyers because they can get a better deal.

A seller's market is just the opposite. The demand is larger than the supply. People have more money to spend on real estate, so sellers will often see several buyers competing to buy their property, which drives up the price. This means that buyers will have to spend more to get what they want. This is the ideal situation for sellers because they often get a better price on their properties.

Median Price Trends

The median price (the midpoint between high and low) is often a very good proxy for indicating real-time market activity. As the median price changes, this can indicate key market movements.

A rise in median price means that sellers are responding to more sales in their local area which means that the local market might be “strengthening” or getting “hotter” – favoring sellers, so they will ask more for their home. A fall in the median price might indicate the opposite – few homes selling at the current price levels which causes homes on the market to drop their price and for new homes on the market to price more aggressively.

A rise in median price could also mean that homes in the lower part of the market are selling and leaving the market. This means that the remaining homes on the market are at a higher price point, which causes the aggregated median price to rise.

Market Inventory Trends

Inventory is simply real estate lingo for “the number of homes for sale.” This stat shows you how much supply is available in the market you are researching. Inventory levels can ebb and flow frequently due to seasonal effects. There’s usually more inventory on the market in the springtime as the natural rate of real estate activity picks up during this time of year.

Alternately, there’s generally less inventory in the fall or winter as real estate activity slows. Evaluate the current supply of properties, including the number of new construction projects, the amount of available inventory, and the amount of time it takes for properties to sell. This will give you an understanding of the overall level of competition in the market.

Average Days on Market (DOM)

Simply put, the Days-on-Market tells you how long the active properties currently for sale, in aggregate, have been on the market (a.k.a. “time on market”). In other words, of the active listings currently available for sale, how long have they been for sale?

This factor is the average number of days it takes to sell a house in the relevant price range. For example, a market in which a house sells for $150,000 in three weeks is quite different from a market in which the same house sells in six months. The latter is known as a soft market.

In a soft market, sellers can drop prices, give concessions, or wait longer for their houses to sell. The vast majority of homes are owner-occupied, so there’s generally no negative impact on sellers who can’t sell their houses because they can continue to live in them unless sellers are in dire need to move because of a foreclosure, job transfer, or another firm deadline, they’re likely to hold out to get their prices.

Study interest rates:

Review the current interest rates and their historical trends. Higher interest rates can impact the demand for properties and affect the overall market conditions.

TIP:  If you’re working with a good and reputable company to help you find or provide you with investment-grade properties then they should be able to advise you on the various markets and neighborhoods as well as provide you with detailed market information such as local economic data and housing trends.

Blog Posts

Contact

Norada Real Estate Investments 30251 Golden Lantern, Suite E-261 Laguna Niguel, CA 92677

(949) 218-6668
(800) 611-3060
BBB