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Market Trends: Locally Relevant

October 28, 2008 nnyq.com edit With recent announcements of the sale of Donald Trumps' Palm Beach home being the highest real estate sale ever, it might look like the economy is getting back on track. However this home was purchased by a Russian billionaire, so it says little about the reality for average U.S. citizens. The market may be improving in some areas, while it may still get worse in other areas. When trying to analyze real estate trends, one needs to remember that these are highly local. Yes, there is a nationwide trend, but within that are a multitude of sub-pockets, each with their own market.

If one wants to find out what is going on in their own area, one has to look at local trends. Take a look at the MLS for your area. Are there a lot of homes for sale, or is the number moderate? Are a lot listed as foreclosures (i.e., does the bank need to approve all offers)? If there are a lot of foreclosures for sale this implies that things aren't doing so good. Foreclosures are usually going to sell for less, and this will naturally bring the entire market down. Even though foreclosures aren't always such a great deal (they may have been damaged or have other problems) they still reflect a time and place of low economic prosperity. They can also flood the market, changing buyer's habits and affecting the price of other, higher quality homes just because of their sheer numbers.

However, if there aren't a lot of homes for sale, and very few foreclosures, this is a good sign that the local economy is stabilizing. People's aren't in a panic to sell fast (i.e., they can still make their mortgage payments), so prices aren't dropped too low. Buyers don't have much selection, which means they are more likely to make generous offers on the homes and properties that are available. All of this drives the market up further.

Just to be clear, foreclosures can happen to anyone, and when I say they reflect a place of low economic prosperity, this doesn't mean that it's a poor neighborhood. Many otherwise prosperous homeowners, during a bubble when they saw their homes rising greatly in value, may have taken out some of their equity for home renovations or other expenses. Perhaps they were thinking a few improvements could help them sell for more, and make even more money. Then, when the market crashed, due to forces completely unrelated to their actions, they were stuck owing their lender all this equity that no longer existed in their home.

If one wants to figure out what's going on with their local market, it may be very helpful to talk to a real estate agent. A professional Realtor® should have the sales history information that will allow them to identify trends. But be sure it's an agent local to the area you want to track. It's important to keep nationwide trends in mind when analyzing the real estate economy, but keeping your local area and even neighborhood and home type in mind will give you the most accurate picture of the market that applies to you.