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23 September 2008

Market Phases: The Data Speaks

Posted by Nicolai Kolding

A few days ago I offered the idea that the direction of the residential real estate market is driven first by transaction sides then by price.  The basic theory that the market is cyclical is obviously not unique.  There are several different views on this; my cycle has eight phases (with Phase I being Paradiso to Phase V’s Inferno).

To support this, I gathered national and regional (Northeast, South, Midwest, and West) figures on closed sales and average price from the National Association of REALTORS® for each month dating back to January 1999.  I then compared the rate of change versus prior month, quarter, and same month of prior year to analyze how the data fit the phases.

There are a ton of numbers here but I believe it’s worth your time as it’s very compelling.  To see it for yourself, you can either view the spreadsheet or email me for the original (note that there are six tabs to the spreadsheet).

As you study this, I would suggest focusing most of your attention on the “Prior Yr” column.  You may find the following interesting:

  • Nationally, Phase II seemed to hit around November 2005 (with the West entering earliest)
  • Phase III came in April ’06 for all regions but the West (once again several months earlier at December ’05)
  • June and July ’06 marked Phase IV for all regions
  • Phase V (price down, sides down) looked to be a year later for all but perhaps the Northeast, which vaguely appears to have entered that stage, but only weakly so, in April ’08.
  • Finally, note that although the West is currently experiencing an accelerating rate of decrease in price, the story for sides appears to be headed in a positive direction.

Once you view the file, it’s set up so that you can put your own local data into it and get a new analysis (sorry, the color coding isn’t automatic – my excel skills have definite limits).  Or, if you would like, feel free to email me your monthly closings and average price and I’ll plug it in and review it with you (yes, some of us really love this stuff).

Don’t forget, NAR releases August figures in a few days…

3 thoughts on “Market Phases: The Data Speaks

  1. This is pure gold. I have never seen the two (sides and price trends) correlated.

    I wonder how it would look if you applied it to smaller and smaller sample pools? Our MLS is very small in terms of sides but (relative to the state) high in average price. I ahve emailed you requesting a copy of the spreadsheet.

    Thanks so much for introducing this idea to me.

  2. @John C – Thank you for your comments. I have emailed the spreadsheet to you. Feel free to call me at 973.407.5131 if you want to review this together.

    The smaller the pool of data, the more the data can swing due to anomalies. That makes a smaller pool less reliable from a pure month-over-month basis, however, those anomalies should smooth out if you focus more quarter-to-quarter. Let’s put your data in and discuss what we see.

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