Profiting From Real Estate Investments An Investor Newsletter From HomeVestors Of America, Inc. By Marcie Geffner / Vol. 1 No. 7 04/17/2006 How To Read A Housing Market News reports about national and local housing markets are typically jam-packed with verbiage and statistics, but the verbiage, much of it these days about so-called housing "bubbles," tends to get the most attention. It takes a cool-headed investor to read beyond the hyperbole and drill down into the hard numbers that reveal the true trends in any individual market. Housing market statistics may seem intimidating, but a savvy investor doesn't need a graduate degree in statistics to understand them. Let's clear up some of the most common misconceptions about what these numbers really mean: A decline in the number of home sales is not the same as a decline in home prices. That may seem simple and obvious, but it's surprising how often sales and prices are confused, particularly when verbiage like "softening market" is in play. Sales refers to the number of closed transactions while prices refers to how much money buyers spent to purchase the houses that were sold. A so-called "softening market" may mean lower prices, but it just as easily might mean fewer sales, and the two trends don't necessarily track each other. A decline in the median price of homes sold doesn't mean the value of each and every individual home in that market declined. The median is the midpoint on a list of the prices of all the homes that were sold and it is affected by not only the prices of those homes, but also the mix of different types of homes. For example, if buyers purchased a larger than usual number of luxury homes during a certain period of time, the median price would be higher in that period, even if prices of homes across the market overall had stayed level. Likewise, a boom in sales of entry-level houses could push the median price downwards even if prices overall were stable. The inclusion or exclusion of condominiums, which typically are less costly than detached houses, affects the median price as well. The median price is a useful measure of market trends, but it doesn't indicate the current value of a specific house. A slower rate of home price appreciation isn't the same as a decline in house prices. The rate of appreciation refers to a percentage increase or decrease over a period of time, usually a month, quarter or year. The rate of appreciation could trend downward, yet still be positive, not negative. Positive appreciation means values increased while negative appreciation means values decreased. A slower rate of appreciation means prices increased, but more slowly than they did during an earlier period of time. Again, the rate is a useful measure of the market, but doesn't necessarily denote the current value of a specific house. News reports about housing markets often rely on statewide or national numbers. These figures can be helpful to identify broader trends, but they don't necessarily explain what's happening in any local market. For that, local numbers are needed. Don't ignore anecdotal or intuitive data as well. Sometimes such subtle gut-instinct information can be more indicative of a local market than, say, national market data. Housing market data is sometimes annualized or adjusted to account for known seasonal variations. These adjustments aren't worrisome, though it's important to know whether data has been annualized or adjusted or not since annualized or adjusted data can't be compared reliably to data that hasn't been annualized or adjusted in the same way. Investors who focus on facts rather than verbiage can make sound rational decisions, instead of wild emotional ones. Copyright 2006. Marcie Geffner. All rights reserved. COMING NEXT ISSUE: The conventional wisdom that you can't get something for nothing isn't true when icertain valuable freebies that investors can get. The Investor e-Newsletter is provided free by HomeVestors of America, Inc. HomeVestors of America HomeVestors franchisees use a proprietary software program, BMS, to evalute property values and estimate repairs. The software is part of the package franchisees receive when they buy a franchise. For more information, visit www.homevestors.com or give us a call at 1-866-249-6932. If you have a question, comment, or an idea for our newsletter, please click here. <back | printable version