Understanding your neighborhood’s real estate market can feel like a puzzle, but knowing a few key metrics can paint a clear picture of whether it’s a buyer’s market, seller’s market, or somewhere in between. Here are five easy ways to evaluate the housing market in your area:
1. Price per Square Foot
One of the simplest ways to assess the market is by looking at the price per square foot (PPSF). This metric shows how much buyers are paying on average for a square foot of property in your neighborhood.
• What to Watch: Rising PPSF indicates increased demand or appreciation in property values, while a declining PPSF could suggest softer market conditions.
• How to Find It: Check recent sales data for comparable properties in your area or ask your real estate agent for a market report.
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2. Absorption Rate
The absorption rate measures how quickly homes are selling by dividing the number of active listings by the number of pending sales.
• What It Means:
• A rate under 6 months of supply suggests a seller’s market, with strong demand and limited inventory.
• Over 6 months indicates a buyer’s market, where homes take longer to sell.
• Why It Matters: A balanced market often has around 5-7 months of supply, giving neither buyers nor sellers the upper hand. In San Francisco the absorption rate can often be closer two months indicating a very strong seller’s market.
3. Days on Market (DOM)
Days on Market refers to how long it takes for homes to go from listing to under contract (sold).
• Short DOM: Indicates high demand and a fast-moving market where buyers need to act quickly.
• Long DOM: Suggests homes are sitting on the market longer, giving buyers more negotiating power.
• Pro Tip: Look at the DOM trend over the past three months to see if the market is heating up or cooling down.
4. List-to-Sale Price Ratio
This metric compares the original list price of a home to its final sale price, expressed as a percentage.
• What to Look For:
• A ratio of 100% or higher means homes are selling at or above asking prices, which is a hallmark of a seller’s market.
• A ratio below 100% suggests buyers have more negotiating power.
• Why It’s Useful: This metric highlights how competitive the market is and how accurately sellers are pricing their homes.
5. Inventory Levels (Months of Supply)
Inventory levels, or months of supply, measure how long it would take to sell all the homes currently on the market at the current sales pace.
• Seller’s Market: Less than 4 months of supply indicates high demand and limited inventory.
• Buyer’s Market: Over 6 months of supply suggests there are more homes than buyers, giving buyers an advantage.
• Balanced Market: Between 4-6 months is generally considered balanced.
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Putting It All Together
By keeping an eye on these five key metrics, you can gain a clearer understanding of your neighborhood’s real estate market and make informed decisions. Whether you’re planning to sell, buy, or just stay informed, these insights will give you a solid foundation to assess the market dynamics in your area.
If you’d like a detailed report on your neighborhood or help interpreting these numbers, I’d be happy to assist. Let’s dive into the data together and uncover the opportunities in your local market!
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