More On Real Estate Research

In a previous post, I had explained how I research real estate market cycles.

At the time (around september 2005) I was looking for a place to invest the proceeds of my california properties which I thought had peaked. I chose Salt Lake City because it looked primed to start appreciating. I'm terms of appreciation, it was near the bottom of the list of top housing markets.

I just saw the national home-price appreciation numbers for 4th Quarter 2006 issued by NAR(National Association of Realtors) and SLC is now number 2 on the list with 22% appreciation last year!

However, when looking at NARs numbers, don't take them to be the gospel truth. They may be wrong, or wrongly applied. For example, the average number for Dallas-Fort Worth is -4%. Considering that the population there is probably around 7 million, that seems too big an area to consider 'average'.

Always try to look at another source to cross-verify the data. DataQuick is a good source, but you typically have to pay for the information. I really like John Burns's Real Estate Consulting. I consider him a much more relevant source of info than NAR. His Metro Stats page has broken down Dallas and Fort into seperate components (like they deserve to be) and you can see there's a 25% difference in median home prices between the two. But what I think is really important is the Housing Cycle Barometer Index.

Its a proprietary method of determining where home prices are in the housing cycle. This is where you want to focus your attention. An HCB value of 1 means the property is the cheapest its ever been historically and 10 means its the most expensive. (Not in actual dollars, but in economic terms).

For example, Salt Lake City which is 5.2 (out of 10) is roughly in the middle of its cycle. With people spending 29% of the average income its probably a safe place to invest. However, San Diego which is 7.2 on the HCB scale and where people spend 75% of the average income on housing and saw a decline of 4.5% in the 4th quarter is probably very risky! Am I glad I sold out of San Diego when the going was good!

Remember, always do your own research. And never blindly follow someone else's advice. You never know if they have a hidden agenda.

If you don't know anything about research, the first thing to do is read some good investing books.