Five Signs that the Real Estate Market is Heating Up

Markets rise and markets fall. But no trend lasts forever. Even the current real estate market, which has been falling for not just months, but for years, is eventually going to reverse and begin rising. Foreclosures -- now at an all-time high -- will be absorbed in time and the numbers will all improve. The big question is, How can you spot a reversal before the prices change?

Here are five signs to look for that tell you the market is getting better:

1. Properties sell faster than in the past. The most obvious signal of an improving market is that properties sell more rapidly than in the past. In a soft market, properties may be on the market for six months or more, and many are quietly pulled off the market without selling. Houses in some price ranges sell more rapidly than others, with higher-priced homes moving more slowly. So look for more rapid sales activity across the board to get a sense of gradual improvement. When average time on the market falls below three months, that's a good sign.

2. The spread between listed price and sale price narrows. Your local real estate broker and banker can tell you how recent sales statistics are changing. The "spread" is a very important number. It is the difference between what a home is listed for and what it sells for. In a soft market, the spread is quite large, perhaps 10% or even much more. In a healthy market, the spread begins falling; once it goes below 5% you are in a strong market.

3. Foreclosure numbers fall as foreclosure homes sell. Everyone is worried about foreclosures, not only for themselves but also for what it does to the neighborhood. When a property goes into foreclosure close to your house, it makes it harder for you to sell. But once those foreclosed homes begin moving, the market is going to pick up too. Many foreclosed homes are sold at discounted prices because lenders want them off their books, so bargain hunters focus on these properties rather than others. You need to watch the rate of foreclosed homes currently available. When the numbers fall, that's a good sign for the entire market.

4. Local permit applications for home construction begin accelerating. A subtle statistic, often overlooked in real estate, is the trend in permit applications. It takes a few months to build new homes, so builders apply for permits when they see greater demand. Check with your local government and track monthly numbers for new home permit applications. If you see the numbers rising, it could mean that demand, even though invisible for the moment, is growing.

5. Your home's assessed value rises. No one likes getting a higher property tax bill. In fact, in many communities, assessed values have been falling to reflect the decline in overall market value. The opposite applies as well. When you see assessed values beginning to rise, it is a good sign for the market. Yes, you will be paying more in property taxes; but your home's value will be rising, too.

Michael C. Thomsett is a business author. He writes about real estate as well as investing. See http://tinyurl.com/44zwj2v
for his book about investing in real estate.