Timing the Market: Indicators to Determine Market Phase

[Marcel Duarte]

Hey Folks,

Curious as to what indicators savvy investors use to determine the market cycle phase? I'm using the framework described in David Lindahl's book 'Emerging Real Estate Markets': Buyer's Market Phase 1, Phase 2, Seller's Market Phase 1, Phase 2. He discusses using quantitative factors such as:

Demand:

1. Employment Growth (driven by commercial incentives and strong local leadership)

2. Affordability (correlation between price and income)

3. Absorption Rate

Supply:

1. Building Permits

2. Vacancies

I'm getting a gut feeling we're seeing seller's begin to flood the market (at least in Tampa Bay) and we're at the early stages of a Seller's Market Phase 2. That's just a feeling though and I'm really looking to put together a cohesive investment thesis to pitch to potential investors. 

What metrics do you all use to help you see the bigger picture? Also, where would you obtain the necessary data? 

Thanks in advance!

[Account Closed]

My simple analysis is to count 'warm bodies'. By that I mean that population growth is going to mean that there will be people available to rent to. As for up or down markets/buyer seller market, like the stock market you can make money either way if you focus on the fundamentals.

We always look for a competing property in a market that is out performing the other comparables. That usually tells us if there is upside and if there are renters willing to pay the higher rent. Sometimes we just cannot offer the same amenities as the higher priced property but the delta is a good barometer of the strength of the market.

As for all those other factors you have listed, they are very important but you need to put together an algorithm that you can understand so that you tract any trends. I would take a lesson from the Wall Street guys an look for corollaries. The problem with most real estate data is that it is dated and by the time you get the info, the market has moved. By developing corollaries, you can become more predictive and less retrospective. (in case you are wondering what corollaries are, think of the idea that when there is a power outage, nine months later there is an increase in children being born)