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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7/7/13: Moving Market Metrics and What They Mean to Real Estate Investors

Gold, oil, interest rates, the dollar and the Dow.  These are just a few of the many market indicators captains of investment funds watch.  But what, if any, importance do these items have for real estate investors?

In the studio to muse on the meaning of moving market metrics:

  • Your captain of conversation, Robert Helms
  • Co-host and pit chief, Russell Gray

Whether you’re a race car driver or an airline pilot, it’s important to pay attention to your dashboard.  All those little gauges are measuring important factors which affect the performance of your vehicle.  And you’ve probably noticed that the higher the stakes, the more gauges there are.  After all, lives are at stake.

It’s an apt metaphor for investing.  When you’re operating your investment vehicle and navigating the dynamic landscape of the economy, it’s important to watch your gauges.  And the higher the stakes, the more critical it becomes to monitor those indicators.  No wonder the big fund managers obsess on financial market data.

If your plan is to build a big real estate empire, at some point you’ll want to become skilled at watching and interpreting various financial market metrics.  And the sooner you start developing those skills, the sharper you will be when the time comes that you really need them.

But it doesn’t mean you have to be a nerdy rocket scientist (our apologies to all nerdy rocket scientists).  That can be intimidating for average Joes.  But it does mean paying attention, taking time to think and ask questions; and engaging in thoughtful conversations with your advisors and other committed investors.  It’s one of main reasons we do our annual Investor Summit at Sea™ and why you should seriously consider joining us.  Where else can yo go to talk economics and real estate investing for an entire week with people like Peter Schiff and Ken McElroy?

Okay, enough pitching…but you should come with us. 😉

Lots of real estate investors live in a bubble insulated from many of the things that keep paper asset investors up at night.  We think that’s a mistake.  Ignoring the bond market cost a lot of real estate investors a lot of money in 2008.

So gold has been in the news lately.  After a decade long bull run, gold tanked to a 3 year low and at a pace unseen in decades.  So what?

Well, if you start from the premise that gold’s value is fixed and that the value of the dollar is what’s changing, then gold can tell you what people think about the dollar and the American economy.

For example, take a look back over the gold news for the last several weeks.  You’ll find that gold dropped when a positive jobs report came out.  Now we know some might argue the jobs report wasn’t really positive because the U.S. created a lot of part time service jobs and decreased full-time manufacturing jobs. But that’s a different discussion.

The point is that gold’s movement is telling us that something is happening.  And when we dig deeper, we find out that the jobs report was “positive”.  When we dig even deeper, we find the kinds of jobs being created are part time, low-paying, service jobs.

So it may be that America is getting poorer meaning less people will be able to afford to buy and more people will have to rent in lower priced areas.  As a real estate investor, is this good to know?  Might this influence which markets. product types and price points you invest in?  Sure, it’s only one data point, but it’s something to think about.

What about oil?

This one’s a little easier to understand.  High oil cost means high gas prices.  High gas prices means less money to pay rent.  But it also means that EVERYTHING that is transported just got more expensive.  After all, someone has to pay for those increased fuel costs when shipping products from manufacturer to consumer.

If you’re a paycheck to paycheck tenant and you’re commuting every day, will higher gas (and therefore commute costs) affect which areas you decide to live in?  Probably.  Maybe not at first, but if life is getting more expensive, people will move.  This is especially true on the lower end where $25 or $50 a month is a lot of money.

What about the stock and bond market?  We can almost look at those together because usually (not always) they go up and down like a teeter totter relative to each other.  That is, when stocks are up, bonds are down and vice-versa.

Once again…so what?

Well, rising bond prices means lower yields (interest rates).  And rising a rising stock market usually means rising interest rates because as bonds fall, interest rates rise.

It amazes us how many real estate investors are surprised that interest rates have been rising, even though the rising stock market completely predicted it.  But if you don’t think the stock market matters to you as a real estate investor, you don’t pay attention to it, so you’re surprised.

Surprises are fun at birthday parties and at Christmas.  They aren’t fun in investing.  It’s better to pay attention.

We could go on and on (and on and on), but you get the idea.

Our point is that the more you have (or want to have), the higher the stakes are and the more important it is to look at the big picture.  But don’t over-think it.  You’re not looking to crack the code and hit a grand slam home run.  You just want to be a little ahead of the game and avoid unpleasant surprises.

Now for a pleasant surprise, listen in to this episode and have your brain stimulated for a little while.  Then make your plans to join us for a week of education and lively conversation (and some warm Caribbean sunshine) at our 12th annual Investor Summit at Sea™.  It’s going to be awesome!

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