Table of Contents
- How Investors Spot Hot Markets
- Inventory Data
- Trends in Months of Supply and Homes For Sale
- Decreasing Days on Market (DOM)
- New Jobs or Rising Salaries
- Government Investment
- Inventory Data
- Neighborhood Trends Indicating Hot Markets
- An Uptick in Home Improvements
- Gentrification
- New Development and Amenities
- Real Estate and Financial Industry Trends Indicating Hot Markets
- New Real Estate Agencies and Banks
- Data for Risk Analysis for Investing Decisions
How Investors Can Use Property Data to Predict Hot and Cooling Markets
Steadily rising prices are an indicator of a market heating up. But savvy investors look for earlier indicators of property price movements to stay a step ahead. Trends derived from relevant data, when pieced together, can reveal areas where investors stand to gain from rising property prices. Increasingly, investors are looking to data providers like ATTOM to drive their prospecting.
By incorporating the right data — economic, population, or neighborhood data — into analytic models, investors can build a thesis and jump on potential investment opportunities. So, what are the precursors to a hot real estate market and how can investors detect them?
Here’s a look at how to spot a potential real estate boom.
How Investors Spot Hot Markets
Macro data that apply to real estate, such as interest rates and an increase in the consumer confidence index (CCI), are factors that will influence the nationwide property market. Property investors, however, are more interested in what is happening at the local level, such as trends in housing inventory or insights into potential government investment.
Inventory Data
If there are few houses available on the market, demand will go up if economic and demographic forces spur economic growth. For example, economic growth is anticipated if new companies and businesses move into an area. Growth will also occur if local governments plan new amenities or invest in roads and transportation.
If such growth is expected, and home prices are low, this could be an ideal opportunity to buy properties that are undervalued and set to rise in value.
Various benchmarks can indicate trends in housing inventory.
- Trends in Months of Supply and Homes for Sale
Months of supply is a measure calculated by dividing the number of homes currently for sale by the average number of homes sold per month. Less than four months’ supply indicates low inventory.
Trends in the number of homes for sale is another data point to track. If the number of homes for sale decreases, inventory is tightening. That means demand and prices could also start to trend upwards and create a hot market.
- Decreasing Days on Market (DOM)
Days on Market (DOM) is the average number of days it takes for a home to sell from the time it is listed. A low DOM typically indicates a hot market with limited supply, as homes are selling quickly. If DOM is decreasing, which means homes are starting to sell quicker, this could be a good indicator of a potential upside for property investors.
- New Jobs or Rising Salaries
An increase in jobs in an area indicates business activity. This occurs if existing companies expand, or if new companies locate in an area due to local government incentives.
The ensuing economic activity creates employment opportunities and attracts homebuyers. This, in turn, increases the demand for homes and pushes up home values. An uptick in jobs combined with low home inventories are prime indicators of a property boom.
Demographic data show trends in jobs and salaries. ATTOM incorporates weekly wage data from the Bureau of Labor Statistics into its reports that reflect the affordability of homes. For example, the U.S. Home Affordability Index shows whether homes are becoming more affordable in an area. If so, this will attract buyers and increase the price of housing.
- Government Investment
It’s a positive sign if state and local governments are investing in infrastructure in an area. Improvements in roads, transportation, hospitals, and schools are signs of a strong economy. A strong economy is a growing one, and that will positively affect the price of real estate.
Some resources for indicators of government spending are USAspending.gov, the National League of Cities’ ARPA Investment Tracker, and your local government’s website. These resources provide information on federal and local spending, including grants, contracts, and other investments.
Neighborhood Trends Indicating Hot Markets
Neighborhood data can reveal a lot about what is happening in a local area. These data show the location of new schools, hospitals, and amenities.
Some types of data also show whether homeowners are investing in their properties and upgrading. If they are, this is a sign that homeowners are feeling confident in future economic growth.
- An Uptick in Home Improvements
If a number of properties are undergoing renovations, extensions, and improvements, this will push up property values. If home prices are at a low, an uptick in home improvement activity could mean an area is ripe for investment.
Building permit data are a good resource for renovation trends. These data show the permit classification, which can tell you what type of improvement was done. For example, whether it was a new roof or a new electrical system.
Property data is a useful resource. Property characteristics data show whether properties have eco-friendly construction materials or HVAC systems. If they do, it could be an indicator of an ongoing trend that will ultimately boost home values.
- Gentrification
Some of the best property investment outcomes are the result of gentrification. In a matter of months, a run-down section of a town can be transformed into high-end housing and a bustling lifestyle center with popular restaurants and shops.
Demographic data can help to identify possible areas that might undergo gentrification. For example, if the average age of the local population is trending downward, it could indicate an influx of young professionals. A younger demographic will encourage developers and investors to revamp an urban area to take advantage of their spending capacity.
- New Development and Amenities
Government data will show you plans for new schools, hospitals, parks, commercial areas, or other amenities. But also look at other indicators, such as farmers’ markets. Farmers’ markets are a good example of an increasingly desirable amenity. If there are new farmers’ markets in an area, it could indicate growing consumer spending and demand.
Real Estate and Financial Industry Trends Indicating Hot Markets
The number of real estate agents, banks, and lenders in an area offer a glimpse into what the future real estate market might look like. This is particularly the case if more of them are appearing in the high street.
- New Real Estate Agencies and Banks
Estate agents move with the market. The larger real estate companies carry out extensive research on market trends, public transport plans, jobs availability, and regeneration plans before making the decision to open a new branch.
If there are more than three estate agents in an area, it’s likely to be an area that will experience house price growth in a short space of time. Also, if new bank branches are opening up, it’s an indicator of loan demand and a growing economy.
Data on potential to default and foreclosure is useful here also. If the trend is toward fewer defaults, and new lenders and banks are attracted to the area, it could be a sign that home prices are about to rise.
Data for Risk Analysis for Investing Decisions
Data that show economic, demographic, and neighborhood trends all inform a robust thesis about the boom or bust potential for a location. That said, investment decisions require a thorough risk analysis.
Data on environmental hazards, climate data, and extreme weather events are critical components of a risk analysis. The cost of insuring properties against events like flooding is a huge factor in whether or not a town will boom or go bust.
A little creative thinking can inform investment decisions. Data can support the thesis you reach and help you find lucrative property investments.
Contact an ATTOM representative today and find out how we can meet your data and analytic needs.
