How To Predict a Real Estate Trend

In a rising market, each house sells for more than the one before. The news of the new sale is received enthusiastically by the neighbors, who immediately revise their opinion of their own home's value up to at least that number. That sale now becomes the "floor" price, and each subsequent sale is expected to meet or beat that number.

In a falling market, each house sells for less than the one before. The new sale now becomes the "ceiling" price, and each future sale of a comparable property will be lower than that number. This is the logical way to view the ups and downs of any market. But what happens is that the neighbors do not revise their their opinion of their home's value down, but instead deny the validity of the sale. I hear "Yeah, but they gave it away", or "they priced it low because he lost his job." So rising prices are received with enthusiasm, while falling prices are explained away.

Of course I understand that we are not totally logical creatures, and we don't react the same way to positive and negative news. However, to be a successful home seller, we must take off our emotional hats, start thinking like a stock market day trader and see the market as it is and not as we wish it to be.

I just sold a property in Florida and I had to write a $27,000 check to close escrow. Ouch, that hurts! But what made is especially hard was that the house had $100,000 equity in it a year ago! The market really did fall that far that fast, and it was hard to get my head around it, to mentally accept it. Not only did I lost the $100K I thought I had, but I had to write a $27K check as well! That stinks! But the take-home message is that I'm out of there because I saw the market as it was and took action, while many are still stuck in that declining market.

Robert Campbell, in his book "Timing the Real Estate Market", gives the 5 indicators that predict a market's direction. They are:
1. Existing home sales
2. New Home Building Permits
3. Mortgage Loan Defaults
4. Foreclosure Sales
5. Interest Rates

Currently in San Diego County, the first two are falling, and the last three are on the rise, so we are still in a buyer's market and we have not seen the bottom yet.