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How’s the market?

Well, the market is what the market does… and here in Atlanta, it does what it does relatively slowly.  We all know the changing real estate market conditions have been covered in the national mainstream media, but those of us who have been active in the Atlanta real estate market know that the national real estate boom of the past few years managed to pass us by. Atlanta housing prices have enjoyed steady appreciation without the skyrocketing increases that have pushed other large markets toward a bubble and Fortune magazine predicts about 4% growth in values for the Metro Atlanta area over the next two years…not far off the 6% annual return we’ve seen in over the last five years.

With the real estate market operating like any other financial market - on the premise of supply/demand economics – I’ve been working to develop a way of delivering the stats. So when the time comes to sell, you know how to effectively position your home within the marketplace to maximize the return on one of your largest financial assets - as nothing is more essential to attracting qualified buyers and creating a successful sale than a thorough understanding of the market your home is in. So, how is the market? Well, the market is what the market does… and here in Atlanta, it does what it does relatively slow.

So, in an effort to continue to educate and build value – I’m committed to providing you a monthly Marketplace Analysis for each of the zip codes and neighborhood areas I’m marketing homes in. In this first installment we’ll examine how my simple Four Step Process works so that you are in the know about the latest market trends.

STEP 1: Segment the marketplace into geographic regions.

In order to provide the most accurate picture of the current Intown Atlanta Real Estate market, we need to acquire both a macro view of the whole marketplace and micro view of selected Intown Zip Codes. The broader view is helpful, but the close-in view on specific Intown market areas is essential as I develop Market Value for a particular property and strategize with you on how to best position your home to achieve a sale in a reasonable timeframe. I feel the easiest way to create segmented market profiles is to track real estate performance using the existing MLS segmented geographic regions, or zip codes, since the real estate data is already aligned in that format.

STEP 2: Determine available inventory levels.

I can determine the level of competition for your buyers dollars by tracking the number of active listings on the market for sale. In a healthy marketplaces about 65% to 70% of the inventory will sell within a 60 day period, though these percentages can climb higher (even to 100%) when inventory levels are low. The sale percentages above are affected by the markets inventory levels.

STEP 3: Calculate the # of transactions in the last 60 days.

To get an accurate picture of marketplace activity, I look at the number of pending transactions for properties that are in the process of closing and transferring ownership. In most markets, a property remains as a pending transaction for 30 to 60 days, after which time the money and ownership is transferred, and the deal is referred to as closed or sold.It’s important to analyze the market based on pending rather than closed or sold properties because the completed transactions reflect the activity of the marketplace 30 to 60 days ago rather than right now.In a marketplace that is active or even volatile, dramatic changes can occur over a time span of 60 days. Earlier this year in one the marketplaces I work in, the inventory of homes for sale went up by over 40% in less than 60 days, and pending sales went down by 29%. If I only track sold or closed properties as most Realtors do, I wouldn’t understand the reality of the marketplace for another 60 days. Because I watch pending activity, though, I am able to counsel my clients about the changes and suggest necessary adjustements on their listing before other agents in our marketplace recognize what has happened. I end up saving my clients money by acting quickly and decisively.

STEP 4: Calculate the Market Absorption Rate %

This last calculation is an important one as it gives us a baseline of analyzing the health of the marketplace – or, more specifically, how many days would it take to sell the current inventory of homes for sale at the current rate of buying demand. By taking the current inventory level and dividing it by the number of pending properties, I calculate how many days worth of inventory is for sale in your market area. This provides a snapshot of current supply and demand. Let me share an example. If there are 250 homes for sale in a given geographic area (zip code) with 50 of them reflecting a pending status in the last 60 days, I would take 250 divided by 50 and end up with 5 – I then multiply by 60 (average period of time a home shows pending) and get 300. This means the marketplace has 300 days worth of inventory (roughly 10 months) provided that no other homes come on the market in that time. We all know that more homes will be listed for sale, but we have to use some baseline for analysis. The resulting determination that the market has a ten-month housing inventory indicates a very competitive market for sellers, one in which effective marketing and pricing strategies are key to success. In contrast, one of my good friends who sells homes in southern California sent his market stats recently for me to look at, showing 110 properties available with 228 pending on a monthly basis. That’s quite a different and more robust marketplace than one with 250 actives and 50 pending sales. One has ten months worth of inventory, and one has less than two weeks.

Which market do you think is appreciating faster? Which market allows the seller greater control? In which market will homes spend fewer days for sale? In which market do buyers have the least control and the greatest need to meet seller demands in order to make the purchase? Which marketplace inspires the greatest seller greed?

The marketplace with two weeks of inventory is the right answer to all these questions. By knowing these numbers, we know the future of our marketplace. The trends are predetermined by my monthly analysis.

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