Alot of buyers and sellers tell me they have trouble understanding the housing market. “How do I know if it’s the right time to buy?” “How do I know I’m getting the best deal possible on a home purchase?” “Is now a good time to put my home on the market?” These are just a few questions I hear all the time.
Truth is, while there are general responses to all these questions, the nuances of your local market are what really determine the answers to all the above, as well as most of your other residential real estate queries.
That means–yup, you got it!–you have to study your local market. While enlisting the help of a real estate agent is your best bet at getting a thorough understanding of how a particular market ticks, there are also solid resources available to you at the click of a mouse or a flick of your finger on your smartphone. And let’s face it, in today’s digitally charged, information rich society, it only makes sense to do a little digging on your own.
I still want to point you in the right direction. The best way to understand a particular market is to look at some key housing metrics. They are : Unit Sales, Average Sales Price, Median Sales Price, Average List Price, Sales to List Price Ratio, Inventory, Months of Supply, Market Time and Price Per Square Foot. This week I will talk about Unit Sales, Average Sales Price, Median Sales Price and Sales to List Price Ratio. I’ll discuss the others in a follow up post! You can also catch these statistics in our monthly assessment of the market on Local Housing Data or by subscribing to our monthly newsletter.
Unit Sales: This one is fairly simple, and if you read any financial or real estate news, you’ve probably heard about “increase in sales” or “increase in units sold.” This is a measure of how many homes have sold in a specific market during a specific reporting period. Typically, national real estate and finance organizations (National Association of Realtors, for example) will release these numbers on a monthly basis. And, as I mentioned above, you can find these numbers at a local level using such sources as Local Housing Data. Unit sales are a key barometer of the health of the market. Generally speaking, an increase in unit sales indicates a healthy market, while a decrease can imply there are negative outside influences, such as a weak jobs market.
Average Sales Price: Average sales price simply refers to the average price among any sample population of homes. Average sales prices can present a general pricing pattern for homes in a local area (again, national real estate organizations and financial institutions often release national averages to present a general housing market trend). They can also serve as a key comp when making an offer on a home or deciding what price to put your home on the market for.
Median Sales Price: Median sales price represents the price that is in the middle of a sample population of homes. Half of the homes are priced above and another half below this price. In real estate, this is thought to be one of the best ways to assess and compare prices in different markets. This is because median prices aren’t impacted by particularly high or low prices within a sample of homes. As a homebuyer, the median price can be an excellent gauge on the health of a market as you can get a truer sense of home prices in your area of interest.
Sales to List Price Ratio: It makes sense that the most complicated-sounding term would pack the most punch. In real estate, the sales-to-list price ratio is a key barometer for who the market is favoring: buyers or sellers. In a healthy housing market, the SLPR (as I’ll call it!) is usually within 5 percent of the asking price. However, in a market that heavily favors buyers, it is not uncommon to see ratios that are more spread apart-for example within 8-10% of the asking price. Here’s a safe rule of thumb when it comes to SLPR : if the home is purchased while still new on the market-say 30-45 days- the ratio will likely be within the 5%. However, the longer it’s on the market, the less chance there is for the seller to snag the price he or she wants.
There’s more fun real estate terminology to come next week! However, I hope this post has given you some basic insight into some of the intricacies of the housing market. But, remember, these metrics are just that-metrics. They can be used as leveraging tools when buying or selling, but the result of a transaction is often influenced by larger factors-such as buyer or seller mentality and needs. This is the beauty and beast of the housing market: nothing is ever black and white!