Using Market Metrics to Spot Trends and Opportunities

Markets are always in motion.

Population, economic growth, demographics … these factors and more affect the supply and demand for every property you own.

Without understanding market metrics, investing is like reaching into a lake and hoping you pull out a fish.

But WITH market metrics … the savvy investor can spot trends and opportunities … and bag a winning catch!

Listen in as we explore how to make market metrics work for you.

In this episode of The Real Estate Guys™ show, hear from:

  • Your metric-master host, Robert Helms
  • His laugh-master co-host, Russell Gray

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Crystal balls aren’t real, but market metrics are

Every market is different.

Every city … every neighborhood … even every street has unique attributes of real estate.

When we look at real estate, we’re dealing with many different kinds of markets … niche markets, geographic markets, and demographic markets.

Real estate isn’t a typical asset class. Every deal is unique.

You can choose to throw a dart at the map and buy a property … or you can study market metrics and identify trends.

Most of the information readily available to investors isn’t local … it’s national or state data.

As an investor, you need to learn to take that higher-level data, look at both sides of the equation, and break down what it means for you.

We don’t have a magical crystal ball … but we do know that we can spot important trends if we pay attention to key metrics … and so can you!

Deciphering national statistics

Let’s start by talking about days a property stays on the market.

The National Association of Realtors recently announced that residential properties remained on the market for an average of 36 days in March 2019 … which was down from 44 days in February 2019.

What does this mean for the newbie real estate investor trying to figure out if this is a seller’s market or a buyer’s market?

This is the perfect example of national statistics that give a false impression when you focus on the market at a local level.

Someone in the Bay Area may think that 30 days on the market is forever … but to someone else from Kansas, that seems like selling in record speed!

Remember to dig deeper and look at both sides of the equation. Think about what other factors could be creating this metric.

Imagine that fewer people were listing their homes … that would mean that there were fewer houses available.

If there are fewer houses available but the same number of buyers … then the number of days spent on the market is going to go down.

On the other hand, if there are more sellers than buyers … then homes are going to spend more time on the market.

Three crucial metrics for real estate

Depending on the information you’re after, you pay need to attention to different metrics.

To get a good amount of information, you need a big statistical set.

That’s why most of the data that you read is going to be relating to a bigger group of properties than really affects your market and your property every day.

News pundits often talk about average home price and median home price. These are two different things with very different meanings.

If you have a list of 101 sales that happened last month, the sale in the middle of the list … number 51 … is the median price.

So, if you have the numbers two, five, and seven … the median is five.

And if you have the numbers two, five, and fourteen … the median is STILL five. Median price is NOT the same as the average price.

Another important metric to understand is net in migration.

People are always moving in and moving out of markets. Net in migration means a market where more people are entering than leaving.

More people means more demand for schools, services, shopping, and … housing!

It may seem like a rudimentary concept … but it is essential. If people are leaving a market, demand goes down and so do prices.

Dallas, Texas, is the perfect example of putting a market with net in migration to work for investors.

After the 2008 financial crisis, investors were forced to look at markets differently … and up until this time, Dallas had been boring.

The market had the least appreciation of markets on our radar … but after 2008, stability started to look really, really good.

Dallas had a winning combination of affordability, low income tax, vibrant infrastructure, and diverse economy.

The energy sector was a huge player … and it was one of the few industries that remained solid after 2008. As people moved in for jobs, demand grew.

Now, a decade later, we look at the net in migration, and Dallas has an additional one million residents since we first started looking into the market.

Look to the future

Some of these concepts may seem basic … but in real estate, it’s easy to fall asleep at the wheel. Real estate really does move slowly.

But when you see the headlines, you may feel like the wind is changing fast … and you need to act or be swept away.

Don’t panic. You have time to get in position, study a market, and build relationships.

Keep your focus on the basics … supply, demand, and capacity to pay. Every metric impacts these basic principles of real estate investing.

We can all look at the past and act on what we learn here in the present … but we need to look forward too.

As investors, we ultimately have to take our best educated guess. Market metrics give us the information we need to do our due diligence and act in the best way we know how.


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Doomsday scenario …

Imagine a scenario where a giant asteroid is on a collision course with Earth.  When it hits, a huge portion of the world will be destroyed.

Scientists and politicians know it’s coming.  But it’s years away.

Fearful of triggering panic, the information is suppressed.  Even when leaks get out, they’re spun to seem insignificant.

Of course, those in the know realize real estate and businesses in the region facing obliteration will become worthless.

They also realize values in safe areas will skyrocket once people realize what’s happening and flee the danger zone … bidding up anything available where it’s safe.

So insiders begin quietly divesting themselves of assets in the danger zone … and begin to systematically accumulate assets in the safe zone.

They know there’s time to warn people, but want to make all their moves before acknowledging to the world the gravity of the situation.

Along the way, astute observers piece together the clues.  They realize what’s happening and use all means available to sound the alarm.

Some are dismissed as conspiracy theorists.  Others as doom porn profiteers.

Meanwhile, news feeds are filled with sensational, but trivial headlines … keeping the masses distracted.

So most people go about their daily business, completely unaware a disaster of epic proportions is slowly, steadily looming closer.

Most will be caught completely off-guard.  Some will reap huge profits simply through happenstance … because they accidentally own property in the safe zone.

Most in the danger zone escape with their lives, but not their fortunes.  Because their wealth and income are all based exclusively in the danger zone, they lose everything.

However, a few alert people in the suspected danger zone decide to hedge by acquiring property and expanding their businesses into other areas.

They reason that so long as the underlying investment makes good sense in its own right, even if a disaster never strikes, they really aren’t worse off for diversifying.

Sure, it takes extra time and effort to learn a new area, build relationships, and make the investments … but the incremental expense is accounted for as an insurance premium.

What would YOU do? 

And what does this have to do with your investing?

Perhaps obviously, the asteroid is a metaphor for a catastrophic financial event … say, the collapse of the U.S. dollar or the global financial system.

Could it happen?  Will it?

Of course, no one knows.  But there’s plenty of smart people out there who think it’s already started … and is inevitable.

It may not destroy the entire world.  But it could destroy yours … depending on how well you’re prepared … or not.

Robert Kiyosaki says the stock market will eventually collapse under the weight of baby-boomers hitting age 70-1/2 and beginning forced liquidations.

It hasn’t happened yet, but that doesn’t mean his premise is false.

It can be reasonably argued massive money printing and Central Bank interventions are propping markets way up … at least temporarily.

Chris Martenson says an economic system reliant on compounding growth and abundant energy is doomed to fail.  You can print money, but you can’t print energy.

So when energy production fails to compound as quickly as debt, an economic implosion is inevitable.  There’s no economic activity without energy.

Worse, Chris says, collapse will happen quickly because of the exponential nature of debt.

You can double the straw on the camel’s back many times … but the final doubling ends it all very quickly.

Consider the growth of only U.S. debt (the rest of the world is just as bad) …

1992 – $4 trillion

2000 – $6 trillion

2008 – $10 trillion

2012 – $16 trillion

2017 – $20 trillion

Notice the speed at which the debt is growing.  It’s compounding like a cancer.  And at some point, it consumes the host.

In 2006, Peter Schiff warned the world about the 2008 financial crisis.  People scoffed.

Peter says the next crash will be even bigger because everything wrong in 2006 is MORE wrong today.

Critics of Schiff’s theory point at the stock market … and the fortunes being made … to claim all is well.

Maybe.  But Venezuela’s had one of the best performing stock markets in recent history … and it’s plain all is not well in Venezuela.

Not surprisingly, people are fleeing Venezuela… a reminder of how economic conditions, harsh or otherwise, stimulate migration.  Of course, that’s of interest to real estate investors.

But this isn’t about Venezuela.  It’s about human behavior in the face of possible disaster.

Some ignore facts they don’t like.  Others deny them.  Still others spin them, while most simply don’t understand and can’t be bothered to try.

A few will remain rational, curious, diligent, and proactive.  Common sense says those folks generally fare better.

Clues in the News …

Bloomberg recently reported China is considering slowing or even ending lending money to the United States.

Markets responded by dumping bonds, which drove up interest rates.

So yes, what China does with its balance sheet affects YOUR interest rates on your Main Street USA rental properties.

Of course, China doesn’t want bond prices to fall when it’s holding a bunch of them … especially if they’re thinking of selling.  They just want to quietly unload.

Unsurprisingly, China decried the Bloomberg report as “fake news”.

But if U.S. news is “fake”, what are non U.S. news sources saying?

Here’s an interesting headline from Sputnik News on January 16th …

Chinese Media Explain How Russia and China Can Escape “Dollar Domination”

You should read it, but two important components are oil and gold.

“ … both Russia and China are also stepping up with exploration and acquisition of physical gold reserves, hedging against the implications of a possible collapse of the de-facto world currency.”

Of course, the de-factor reserve currency they’re referring to is the almighty U.S. dollar.

Hmmm … maybe China and Russia see an asteroid on the horizon.

Doom porn?  Conspiracy theory?  Or clues of a possible cataclysmic event coming to an economy near you?

We don’t know.  But we took Robert Kiyosaki’s warnings in 2006 too lightly and paid a BIG price.

Since then, we’ve gotten to know Peter Schiff, Chris Martenson, and Simon Black.

Peter keeps us sufficiently freaked out.  He makes sure we don’t fall asleep at the watch.

Kiyosaki teaches us to keep an open mind, to seek out diverse perspectives, and talk with other interested and thoughtful observers.

Chris Martenson reminds us to pay attention to energy.  And he’s accurately predicted the recent run-up in the price of oil.

Simon Black advocates the pragmatic wisdom of having a Plan B … not being overly dependent on one location, economy, currency, or investment.

Simon says you’re no worse off to be prepared … and it could make all the difference in your future.

All of these very smart friends … and many more … will be with us for our Investor Summit at Sea™ in April.

It’s unfortunate not everyone reading this can afford the time and expense to be there.

Even more unfortunate are those who can, but choose not to.  They have the most to lose … and gain.

We don’t know if the “asteroid” reports are true or not.  But every investor owes it to themselves to consider the arguments and the options.

Better to be prepared and not have a crisis, than have a crisis and not be prepared.

Until next time … good investing!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.

The disrupted American Dream …

One of today’s most popular buzzwords is “disruptive”.  It describes an event, idea, or invention that upends the status quo in some aspect of life or society.

“Disruptive technology” is used for everything from Amazon to Uber.

And as we’ve previously discussed, many of these things impact real estate and investing.

But disruption transcends technology.

Donald Trump’s election and Brexit are two examples.  The world appeared to be on one course … then boom.  A new direction.

So, political norms, societal norms, government and business models …almost everything is being disrupted right before our eyes.

In fact, disruption is so commonplace, it’s become the new normal.

But really, disruption is nothing new.  It goes back to pre-historic times.

The wheel was disruptive … and revolutionized the world (sorry, we had to…)

Farming was disruptive.  It changed the entire societal model … accelerating labor specialization, commerce … even banking.

The printing press was disruptive … connecting human minds past and present at greater speed, for lower cost, and with greater accuracy than ever before.

The U.S. Constitution was disruptive … protecting private property rights for the common man … the foundation on which all personal wealth is based.

That’s a personal favorite. 😉

Radio, telephone, personal computing, the internet, smart phone … all disruptive … each one taking idea sharing to never-before-seen levels.

Trains, automobiles, and airplanes all disrupted the transportation norms of their time … allowing people and their possessions to circulate faster and less expensively.

Now blockchain technology … at least for now … is threatening to disrupt how freely money and wealth circulate.  And governments have noticed.  Uh oh.

Of course, history shows with every disruption, there are winners and losers.

For every railroad baron or millionaire automobile maker, there were thousands of wagon-makers and liveries put out of business.

So while disruption isn’t new … the rate is unprecedented.  The world we live and invest in is evolving at a dizzying pace.

Blink and you miss huge opportunity.  Or worse, you get wiped out by a trend you didn’t even see coming.

The faster the world is going … the further ahead you need to look.

 So with this mindset, here’s a headline that caught our attention …

Why it makes more sense to rent than buy – Market Watch, 1/13/18

Obviously, a real estate headline.  But disruptive?  Seems pretty mundane.

After all, the rent vs. buy debate has been going on forever … usually linked to temporary circumstances favoring one side over the other at the time.

But this article references two interesting reports …

One is the ATTOM Data Solutions 2018 Rental Affordability Report.

It notes … buying a home is more affordable than renting in 54 percent of U.S. markets, but 64 percent of the population live where it’s cheaper to rent.

Hmmm …

Looks like folks prefer to rent where they want to live than buy where the numbers make sense.  Apparently, buying just isn’t that important to them.

Which leads to the second report, A Revision of the American Dream of Homeownership.

This one’s a premium report, so the link’s to the press release … but look at the title … “a REVISION of the American Dream”.

The idea that something so foundational as the American Dream is being … disrupted … is something worth thinking about.

Market Watch did another article based on this report … “Renting is better than owning to build wealth – if you’re disciplined to invest as well.”

Some might say it’s a hit-piece on real estate to entice millennials to put their savings in the stock market rather than a home.

But that would be cynical.

More interesting is the possibility there’s really a disruptive trend developing in terms of the way society views home ownership.

Consider this …

We have a friend who’s a very successful millennial, who can easily afford to own any kind of car … several of them … if he wanted to.

He doesn’t.

Now that he’s discovered ride-sharing, he sees no value in owning a car … not as a status symbol or an investment.

We’re not suggesting this guy’s viewpoint represents the millions of millennials out there.  But it’s worth noting.

Millennials are a big, powerful demographic rolling through the seasons of life … just like the baby boomers did.

Except millennials aren’t like Boomers …they live in a different world and view it through their own lens.

Career, opportunity, family, community, home ownership … roots … are very different today compared to 50 years ago.

In a world where you may change jobs a dozen or more times in a career, and you operate in a global economy, with a social network that’s not local, but virtual …

… home ownership can go from being stabilizing to burdensome.

The sharing economy is changing the way people think about the value of owning things they simply want the use of.

Absent paradigms of ownership, sharing is arguably more efficient.  But for the first time in history, it’s logistically possible.

No generation before has had as many options for sharing as there are today.  

And while pay-per-use seems like a no-brainer when discussing a depreciating asset like a vehicle, Market Watch isn’t the first to argue a home isn’t a great investment.

The pioneer in the “your home is not an asset” mindset is none other than our good friend (and boomer), Robert Kiyosaki.

Of course, Robert’s an avid real estate investor, so his issue isn’t real estate.  It’s about respecting the difference between consuming and investing.

Investing is about profit.  But when you consume, you want value … the right mix of quality, service, and price.

Some people rent their residence because they get a better value, have less responsibility, enjoy more flexibility and variety …

… and it frees up money to invest in rental properties.  They get a better ROI.

So they own real estate … just not the home they live in.

If there’s a new attitude about home ownership working its way into the marketplace, it could lead to a new experience in landlording too.

Because now you might have more affluent, well-qualified tenants competing for longer term tenancies in nicer properties in better areas.

Stable people with good jobs and incomes, who want to live and keep a nice home in a good area, but don’t want the responsibility of home ownership … can be great tenants.

They can also be a way for you to collect premium properties while someone else pays for them.

It’s a trend we’re watching.

Until next time … good investing!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.

Where people are moving and why …

Real estate investing scientists are avid researchers of the migratory patterns of Homo americanus.After all, population affects demand … and monitoring supply, demand, and capacity to pay is an important part of strategic geographic market selection.

So we’re excited because it’s that time of year when all kinds of reports start coming out about the year past … and we can geek out on data and analysis.

North American Moving Service recently released their report on which states experienced the most inbound and outbound migration.

Of course, strategic investing is more than just chasing trends reflected by data.

It’s about digging into the why behind what happened … and infer what might happen in the future … so you can get in front of a trend and ride the wave.

So let’s take a look …

If you know anything about any of these markets, the map and lists might already be talking to you.

Consider that actions … in this case, people moving … are motivated by running towards and getting away.  It’s wise to look at both.

Avoiding problems is just as important as chasing opportunities.  Losses offset wins.  So we study falling markets as well as rising ones.

We’ve previously discussed the mess in Illinois, which you can read here.

And while the above map is just an overview of the information provided in the complete North American report, it’s enough to think about what these migratory patterns might be indicating.

For additional color, check out a similar report from United Van Lines.  You’ll note that their top and bottom states vary from North American’s.

Also, the United Van Lines map is fun because it’s interactive.  You can look at moving patterns all the way back to 1979.

U-Haul also produces a similar report … and their results also varies from the others.

So why the variances?

Perhaps obviously, each company is reporting its own stats … and not every company is equally represented in every state.

Remember: one point of view never tells the whole story.  Always look for supporting and differing perspectives, and corroborating and disagreeing data.

Once the data’s on the table, you can start to dig in and look for commonalities and trends … clues about what’s happening, where, and why, so you can be more strategic than the lazy investor.

Of course, there’s a danger in over-analysis, so don’t get lost in the weeds and forget to invest.

It takes assets, not ideas, on your balance sheet to build wealth. 
Think of it as “investigation for effective action.”

Remember, you’re not looking for the perfect market or perfect property.  There’s no such thing.

You want to find a good market, with good fundamentals, and a great team.

When it comes to migration, our goal is to understand the motives behind the movers … so we can anticipate whether trends will continue, change direction, or otherwise shift.

Because when people leave, they take demand for housing with them.  Lower demand could lead to lower rents and prices.

If the phenomenon is only temporary, it might be a great time to grab some bargains.

But if the reasons people are moving away are permanent or worsening, you might be buying into a downward trend … that could be unprofitable and expensive to escape.

Of course, there are lots of reasons people move to and from places.  Some are non-financial such as family, friends, lifestyle, and weather.

But financial considerations are also powerful motivators to change locations.  A job, the cost of living, and taxes are typically top of the list.

While things like family, friends, hobbies, and weather preferences are all highly personal and subjective …

… things like job growth, cost of living, and taxes are all relatively objective.  They’re easy to identify and measure.

So it’s a useful exercise to evaluate the locations at the top of the list and see what they have in common in these terms.

Then do the same for those on the bottom, and it may start to paint a picture.

Now this is a newsletter and not a seminar, so we’ll let you dig in and do the research if you’re so inclined.

The great news is this is the information age, so there’s terabytes of data available.

But to speed you along, here’s some resources … and some additional food for thought …

Tax Burden

Taxes have been in the news quite a bit, and it’s that time of year when people are reflecting on the past year … and settling up with taxing authorities.

If Christmas is the most wonderful time of the year, tax time is probably quite a bit further down the list.  It’s Uncle Sam’s turn to open his presents … from you.

To see which states are naughty and nice, Wallet Hub publishes a ranking of states by total tax burden here.

Then keep in mind … information workers and retired boomers are largely free to live anywhere.  Total tax burdens could be an important consideration where they go … or leave.

So when you look at the states with people moving in and out, and compare it to the states in light of their total tax burden … you might find a correlation which could infer taxes are a motivator for moving.

Cost of Living and Affordability

While taxes are an important consideration, we’re guessing even more important is overall cost of living and affordability.

US News puts out an analysis of states by affordability.  The 2017 version isn’t out yet, but here’s the 2016 version.

Like taxes, people whose incomes aren’t tied to a specific geography, might consider making a move to a more affordable area.

Of course, if you study some of the rent-to-price ratios of various locations, you’ll find some of the best residential rental property returns come from affordable areas.

Jobs

Housing health is really a direct reflection of jobs.  While academic politicians think housing creates jobs, it’s really the other way around.

So while people might want to live in the country, on the beach, or on a hilltop … most choose to live where they can find work.

Keep in mind, many characteristics of a locality are affected by state-wide considerations such as tax rates, weather, and regulatory climate … while jobs are local.

Fortunately, Wallet Hub also publishes a pretty handy ranking of Best Cities to Find a Job. Now you’re looking at data at a more local level.

Not Rocket Surgery

While real estate investing isn’t as intellectually demanding as many types of investing (that’s why it’s perfect for us!) … it’s more than just picking out a pretty property with nice curb appeal and putting up a For Rent sign.

Each property sits in a market … and neighborhoods, cities, counties, and states all have their own appeal … or lack thereof.

Migration patterns can help you see a bigger trend so you can pick markets likely to rise with the tide of demand.

Until next time … good investing!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.