How To Make a Forecast in the Real Estate Market

Now, that's a tough one to answer because of the tumultuous status of the real estate market over the last 3-4 years! Given that the prospects for economic recovery are still bleak, it will still take another 5-6 years before the real estate market gets back on an even keel. Does that sound interesting? Making forecasts need not be the domain of economists or financial analysts alone; it depends on the amount of data or information that is available to you and how to correlate or link this data to arrive at a forecast. In order to make a forecast about the current and future state of the real estate, here are some important indicators and trends which you need to observe.

Indicator/trend #1: Price
Take a look at the average prices for properties and compare them with the prices 3-4 years ago. You'll find a vast difference in the price, skewed to the lower ranges. Is there any hope of prices increasing in the next few years? It's very unlikely, since no one wants to sell in a depressed market where the sale proceeds may not even cover the mortgage due.

Indicator/trend #2: Foreclosures and short sales
The number of voluntary and involuntary loan closures continues to be in the high ranges as bad loans made in the sub-prime market continue to be on the books of banks and mortgage companies. Lenders are reluctant to approve short sales, if they estimate that a larger portion of unpaid debt can be recovered through a foreclosure or other legal proceedings. Before the crisis, one out of 100 homes would go into a foreclosure, but since then, nearly 4-5 homes out of 100 have been foreclosed in the last three years. As long as this number remains at current levels, there are no hopes of a recovery.

Indicator/trend #3: Demand and supply of rental homes
An increase in the supply and demand for rental properties means that the housing market continues to be stagnant. Homeowners tend to rent out their properties instead of selling them as they wait for the market to revive. Others, who've lost their homes to foreclosure or short sales, are looking for rental homes to live.

Other indicators/trends to watch out for…

1. The job market, unemployment rates
2. Increase in property taxes
3. Rising numbers of first-home buyers
4. Supply of homes available for sale exceeds demand

The indicators discussed here can provide the bigger picture when it comes to the real estate market. Watch out for the trends as you follow these indicators and make realistic forecasts about the state of the market.