Understanding Market Stats Part 1
Market Stats, why should I care?
When you're first approached by a Realtor, what's one of the first things that inevitably pops up? Someone, whether it's you or them will bring up market statistics. "How's the market doing?" Like most folks trying to keep up with a football (me) or baseball fan you just keep nodding your head while they babble on about "absorption rates", Average DOM, Median something or other, and Lord knows what else. Who can blame you for being confused and then disinterested about these random acronyms and numbers? More to the point do these things actually affect you, and how?
First I would make the argument, even as a Realtor myself, that stats without visual cues suck. Some people are number crunching super computers, others... not so much. Also without having a foundational knowledge, most of these numbers will never mean a darned thing to anyone. I can tell you first hand when you start off as a Realtor, the world EXPLODES with numbers and figures that you have to cram in your head like yesterday. I had a similar experience when I started my first serving job. I was given three days to memorize the entire menu including plate garnishes, plus pass a test with a minimum of 80% on the third day. It was stressful to say the least. Similar to the Florida Real Estate exam I passed it on the first try, but not without losing yet another inch of hairline.
You probably noticed in the title of this post it says "Part 1", and with good reason. I plan on writing a series of posts to go through all the stats I offer on my blog. You've probably noticed on the side bar I have multiple links with city names. If you click on any of them you'll see that I have a TON of free market information for every city listed, which is always up to date with the latest MLS data automatically. I want to make sure that you not only have access to this information but understand what you're looking at as well. I believe everyone who owns property should have a base understanding of market stats, so I'm here to help.
Let's start with a few terms important for you to understand.
Listing: According to thefreedictionary.com under the legal section a Listing is "An agreement that represents the right of a real estate agent or Broker to handle the sale of real property and to receive a fee or commission for services". Which is short and succinct and completely accurate. I won't go in to the dozens of different types of listings there are. It's not important at the moment.
Pending: In my own words, when a Listing is "Pending" it means the property is currently under contract waiting to be "Closed". It does NOT mean the property is Sold.
Sold or Closed: Only when you see the word SOLD on a property does it mean ownership "changed hands" or was transferred or "conveyed" from the seller to the buyer.
Seller's Market: This means that the market conditions are favorable to Sellers currently. Usually because there are a lot of Buyers for property in a particular market, and not many Sellers which typically drives up property value and Listing Prices.
Buyer's Market: After reading about Seller's Market's it makes sense that a Buyer's Market would mean the market currently favors Buyers. Usually this comes about because there is a glut of properties on the market, and not enough Buyers. This will typically drive Listing Prices down.
Median: This is a term that has continued to haunt me since my freshman year in high school. It's also a term that many folks seem to have a hard time understanding. According to mathisfun.com the definition of median is, "The "middle" of a sorted list of numbers. To find the Median, place the numbers in value order and find the middle number." So if you have three sales of 100k, 300k, & 500k the Median sale for that set is 300k. Illustrated, finding the Median looks like...
Average: The number one thing people get Median confused with, is Average. The definition of Average according to mathisfun.com is "A calculated "central" value of a set of numbers. To calculate it: add up all the numbers, then divide by how many numbers there are". In other words:
Example: what is the average of 2, 7 and 9?
Add the numbers: 2 + 7 + 9 = 18
Divide by how many numbers (i.e. we added 3 numbers): 18 ÷ 3 = 6
So the average is 6
DOM: Typically when you see DOM it stands for Days On Market. ADOM would be Active Days On Market (usually under a particular Realtor) during a Listing attempt. CDOM would be Cumulative Days On Market (under all Realtors) during this Listing attempt.
Now that we have some of the most important words to understand covered (in Mark's opinion) we can move on to a couple of those stats I was rambling on about. Let's start with my favorite...
Absorption Rate or Months of Supply: Realtor.com says the definition of Absorption Rate is "Absorption rate is the rate at which homes are selling in a specific area". Absorption Rates are usually expressed as single digit numbers, and usually calculated by month. This rate is what tells Realtors whether a market is currently in balance or a Buyer's/Seller's market. For example, as I write this Port Charlotte's Months of Supply or Absorption Rate is 2.4 month. This means we are currently squarely in a Seller's market, or there are more buyers than there is inventory.
Closed Sales: This stat is very easy by comparison to most. Basically it's how many houses sold or closed, during a period of time. Usually in one month. So if 270 houses closed for the month of July, that means 270 houses sold during that time. While not the most in depth statistic, it's good to know how active a market actually is.
Median Sales Price: I love this stat. As I mentioned before Realtors really like to use the Median of something as opposed to the average. It tends to be a bit more accurate on finding the "real" middle of numbers, and in guiding fun things like Listing/Offer prices etc. The Median Sales Price is the exact middle price of what has actually CLOSED within a time period. This can be as broad or specific as you want it to be. In example, for all of Punta Gorda during July, the Median Sales Price was $275,000.00. Of course that's including ALL homes/condos/etc. that was for sale from $100k (or less) to $1M (or more). You can narrow that down to the Median for a neighborhood, or even a street if you like.
For now we'll stop and let some of this information sink in. It's a lot to digest, especially if you're new to the concepts. I hope I've been able to make simple something that can be pretty complicated, and that you'll try out this new knowledge on wherever you're wanting to keep up with the market. Be sure to check out my real estate stat pages, and let me know if I can be of service in helping you understand what you're looking at. If you're in need of real estate service call me at 941-202-1995 or email me at email@example.com!