By Leon d’Ancona
Have you ever been on a listing presentation and not been asked if this is good time to sell a home? At a party, mention that you are in real estate and inevitably the conversation turns to what is my house or condo worth and what do you think the market is going to do.
Strange isn’t it? People don’t ask their butcher what meat will cost next year, or how much their accountant will charge to do your taxes next tax season. Our daily lives are filled with financial decisions of should I or shouldn’t I. Like should I buy two cases of that absolutely heavenly Bordeaux because they will be worth triple in four years?
What things are worth and what they will be worth is part of our daily thinking. I know that I am not the only one who does intricate fiduciary planning for when to fill up my gas tank.
I totally rejoice when I fill up and the next day gas goes up by three cents. Let’s see now, three cents a litre – that works out to a little over $1.80 saved. If I keep doing this every week for 31 weeks, I’ll be able to buy one bottle of that excellent Bordeaux that will surely triple in value. If the opposite happens and the gas price goes down, I am devastated. As I drive by not one, but four gas stations that all lowered their prices simultaneously, my annoyance grows and I am bothered that they all seem to collude down to the last one tenth of a cent.
My granddaughter was blowing bubbles and as I watched I wondered who coined the “housing bubble” phrase, and why. Bubbles are created in seconds, float for several seconds more and then pop and disappear. That, my dear readers, does not reflect home prices.
Only when given a scenario where radio active nuclear waste is found in your backyard, or conversely your house is sitting on top of a newly discovered diamond mine, are there sudden dramatic price changes. Normally residential resale real estate makes gradual moves.
The basic underlying reason for this is that real estate is the true manifestation of the law of supply and demand. That is the reason we buy a house with an “offer”. Picture yourself at the supermarket making a $4.50 offer on a box of corn flakes that costs $4.99.
So how do you become the oracle that clients seek out for short-term market trends?
First, by showing long-term price trends. Explain to your clients that a home is not an ATM machine. A home is the place you live in, not speculate with. In most Canadian major cities, the information shown here in Chart 1 applies.
You will note that real estate may have had its ups and downs over the years. So greedy speculators who bought in May of 2005 would have lost money by September, but long-term homeowners who bought five years ago saw their home value increase substantially.
Next, track how cyclical the real estate market is (Chart 2) especially in Canada, where we tend to be much more conservative than our American friends. On a broad scale, home sales tend to rise the first part of the year and generally decline thereafter, with a few hiccups as sales march towards their December doldrums.
You don’t need a degree in statistical analysis to interpret the sales trends in your city.
As you drill down and granulate to smaller areas these trends tend to become more difficult to spot. I generally recommend at least a 500-home sold statistical basis to spot these trends.
Finally, add pricing parameters, and the picture becomes even clearer. Chart 3 shows a five-year cyclical graph of million-dollar homes.
While markets may differ, short-term pricing trends in this country can be traced once you have the historical data at your disposal. If you need help with this you can call my office.
As you can see, there is no magic to real estate short-term predictability. Once you understand the reality of real estate, you will be the guru people call for advice. A larger income is bound to follow.
Posted: 2010-03-23 08:08:47
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