As a realtor or investor, it is your job to know when a market is starting to warm up. Whether you are looking to buy or sell, recognizing the signs of how a market may be trending can help you—or your clients—use your money wisely.
From keeping an eye on inventory and days on the market to looking out for new construction and businesses popping up, there are several strategies that can put you ahead of the pack when it comes to helping your clients find that dream home or make a solid investment in a blossoming market. To help, five members of Forbes Real Estate Council share some of the telltale signs they look for that a local real estate market heating up. Here’s what they said:
Members discuss a few key signs to watch for when determining what a local market is trending toward.
Photos courtesy of the individual members.
1. High Deal Activity, Record Profits
Typically, reading news about all-time-high deal activity and record profits from early investors is a telltale sign about any real estate market heating up. The more local the news, then the narrower the focus and the deeper the impact, usually. In a similar fashion, financial news pointing to a favorable real estate market is a telltale sign, such as low or decreasing interest rates, favorable economic environment, etc. – Remy Raisner, Proteus Capital Management
2. Cap Rates
In the commercial real estate market, any time we see cap rates equal to or lower than interest rates, it’s a sign the market may be too hot. Leverage is used to increase your returns but can have the opposite effect in this type of environment. – Sam Grooms, WhiteHaven Capital
Read more in Understanding Cap Rate Vs. Cash-on-Cash Return In Single-Family Rental Investments
3. Days On Market And Inventory
Typically, one should keep an eye out for days on market and inventory. If homes are selling fast, it’s an obvious sign. But if inventory levels of similar properties flood the market, that’s a bad sign. – Fred McGill, SimpleShowing
4. New Restaurants Opening Up
I like to see new restaurants opening up. People nowadays like to be near downtown locations where they can walk to restaurants and shopping. New trendy restaurants opening up is a sign that the demand is beginning to pick up and people are moving to the neighborhood. – Christopher Lombardi, Lombardi Residential, LLC
5. New Construction Starting
One of the best signs of the commercial real estate market heating up is the start of new construction. In Portland, Oregon, where I am based, there have been too many construction starts in downtown Portland, the Pearl District and the Alphabet District. So these markets are not heating up and actually have overbuilt in multifamily. However, there have been relatively few constructions starts in the surrounding suburbs. Because there is a shortage of housing and industrial space, these markets are heating up. – Terry Painter, Apartment Loan Store