Real Estate Mathematics

Tuesday, August 15, 2006

Puget Sound Real Estate - Example
In this lesson, we will look at the June 06 numbers for Washington State. You can see them at:
All but two countys show increases of inventory, none in the Seattle area. This suggests that the market is souring, houses will take longer to sell. With 50% more houses, you would expect it to take 50% longer -- no such luck.

With increase of inventory, there is usually a drop in number of houses being sold. From the same report we can actually see this clearly, and introduce our four and fifth indicators:
* Pending Sales
* Closed Sales

Pending Sales Indicator

If you take pending sales and compare them with the prior year, you will see that sales are falling for most area. The major exception are again outside of the Seattle area.

Pending sales is a short lag indicator -- it reflects sales that just happened or which happened in the last few months.

Closed Sales Indicator

This is another indicator reflecting sales that closed this month. The price was set several months ago and is thus lagging. As you can see, every county is having less sales closed. There are less people buying. This is usually some percentage of Pending Sales. The percentage may change over time -- and generally not reported. If it was, it would likely be a good indicator.

Looking at the last item,, closed sales, an indicator from the earlier lesson, we see that it is not showing a slow down.
This illustrates the human factor, people are driven by the price and not the other factors.

So what are our indicators...
  1. Change of new listing - leading indicator -- complex to intrepret
  2. Change of Inventory -- leading indicator
  3. Change of Pending Sales - short lag indicator
  4. Change of Closed Sales -- lagging indictor
  5. Change of Sales Price - long lag indicators


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