Leading and Lagging Indicators in Housing Data - What They Mean - YouTube

if you are thinking of buying or selling  real estate anytime in the near future this  

video is going to tell you which stats  matter and which ones are sending you  

in the wrong direction hanging to the end I'm  going to show you a chart that's indicating  

a huge change in the housing  market so let's get to it

if you like my channel give me the thumbs up  hit subscribe and hit the bell notifications  

so you'll be first to be notified when I drop  a new video which is about every week now let's  

get into this market information okay I'm talking  about the whole united states market here and it's  

really important that we start off by talking  about lagging indicators and leading indicators  

so lagging indicators are going to be information  that we hear about the housing market that comes  

so late that it's really just describing what's  already happened in the past it doesn't tell us  

anything about what's happening in the future  that might have something to do with our decisions  

for that we use leading indicators there are some  indicators that we can look at that will suggest  

how things are likely to change in the future and  obviously if we are buying or selling real estate  

that is what we are more interested in so  now let's talk about some of those statistics  

but we're also going to always consider whether  it's a lagging indicator or a leading indicator  

we're not going to talk a lot about the lagging  indicators i just want to give you one particular  

one that you need to know is totally lagging up  front so you'll never be moved in the direction  

of what you think that one is telling you ever  again one caveat in looking at any of this data  

be sure to always notice what dates are covered  in the statistics it is amazing how slow it is for  

real estate statistics to come out okay so here  is the one statistic I don't want you to ever get  

caught up again in and that is the one you hear  the most about which is what is the median home  

price this should not drive your decisions  yes it's probably the most widely talked about  

statistic in the media but it's seriously lagging  and for a couple of reasons no matter who reports  

it, it's likely to be lagging by 30 to 90 days and  it can be even worse even if someone were adding  

up all these numbers by hand in order to come up  with that the statistic is based on the closed  

home price closed home prices only become solid  on the day escrow closes but the contract for  

that transaction often happened a long time ago  it's been a little shorter lately but usually it's  

about 30 days and can be 45 or 60 days then on top  of that these statistics are regularly reported  

late so if you have a statistic that you're  looking at and it's two months old when they  

reported it and the contract was actually created  another 30 to 60 days before that you can see  

how solidly behind this statistic is and that  is probably why home prices were just recently  

reported as going up again but you'll have to  have taken note that this information was based  

on March data. March data that means the contracts  were agreed to in February and January of this  

year which is before the federal reserve jumped in  and raised rates in March so those home sales in  

march have nothing to do with the raise rates  those people all got the lower mortgage rates  

another indicator I want to talk about you just  shouldn't worry about much especially right now  

and that is when people talk about how much a home  sold for over asking price as you probably know  

we've been in a multiple bid situation for quite  some time now this circumstance of multiple bids  

encourages realtors to set listing prices that  are below the marketing price in order to get  

this type of multiple bid frenzy and hopefully  your seller gets even more than market price when  

people's emotions kick in over the entire multiple  bidding process but you see what I'm saying  

I'm telling you that realtors are purposely making  the listing prices under market in order to create  

this bidding frenzy and what that means is that  when cnbc or cnn comes out and reports that houses  

are selling above listing price thank goodness  because that's the plan so it really doesn't mean  

anything in this particular environment now later  on if there weren't multiple bids maybe it would  

have more meaning but when realtors are purposely  setting them below market price it doesn't have  

much meaning at all okay before I get into leading  indicators I just want to mention that there  

is one set of statistics that isn't as bad as the  median home price meaning it's not as lagging but  

it is changing too so I want to mention that  one and that is the price of pending home sales  

now you can understand why that's not as lagging  that's sometime after the contract has been signed  

that it becomes pending it's pending all the  way from signing the contract through closing  

of escrow and so this period of time inching up to  the close of escrow means that there's less time  

between this statistic and just quoting the close  of escrow so we're going to look at a pending home  

snapshot from April 2022 again please note that  means it doesn't have May data and it doesn't have  

anything in June this is an indication of demand  decreasing as you can see in the united states  

overall month-to-month pending sales are down 3.9  percent in the west it's down 4.3 in the northeast  

it's down 16.2 in the south it's down 4.7 and it's  only up in the midwest and that's 6.6 in any event  

if pending home sales are down it suggests a lower  demand and so this could have some effect in the  

future on our supply and demand situation  so now let's talk about leading indicators  

so one of the leading indicators is always going  to be mortgage rate costs and that's because it  

has such a big effect on what people can afford  to purchase as a home for example for every time  

mortgage rates go up one percent that means for  you to have the same purchasing power the price  

of the house would have to drop 10 well I'm sure  you're aware mortgage rates right now are up about  

three percent from where they were before which  means the typical person who's pulling a mortgage  

they now have 30 percent less buying power that's  painful and it will lead to changes in the market  

besides mortgage rates another thing that's always  going to be a leading indicator of what's going on  

in the real estate market are things that actually  show you the difference between supply and demand  

it's just normal economics 1a if there's lots of  supply prices tend to be lower if there's lots  

of demand prices tend to be higher and then of  course there's all the variations of those two  

things working hand in hand in between this so do  we have some current statistics on these leading  

indicators? yes we do first let's look at mortgage  rates, look at this chart this chart is about  

home buyer mortgage payments and as you can see  currently they are up 42.4 percent year over year  

that means people can't afford to purchase the  same price house that they could last year and by  

quite a large margin the gray line on the bottom  shows you how this trended all the way throughout  

2020. the blue line shows you how this trended  in 2021 and you can see the shocking result of  

interest rates going up in 2022 and the incredible  steepness in this particular chart which shows you  

the mortgage payment on the four-week rolling  average of the median asking price clearly  

the red line is incredibly steep and May first is  showing a price so much higher than previous years  

okay so notice I said may 1st that's how far this  chart goes remember I told you to pay attention to  

what is the time period of the data so this one  is essentially April data and here we are in June  

so we're still like a month and a half behind all  of may and a little bit of June but the point is  

the same because of this rise in mortgage rates  purchasing power has significantly decreased now  

of all the statistics for leading indicators I  just want to mention two in this particular video  

because they're showing some serious change first  of all we're going to look at redfin's homebuyer  

demand index what this is is a weekly value of  redfin's seasonally adjusted home buyer demand  

index based on requests for home tours and other  home buying services so obviously redfin is in  

the business of real estate and they keep the  statistics for how many people are asking for a  

home tour and how many people are asking for other  home buying services and as you can see demand  

this year is down negative one percent from this  year compared to last year so the gray line below  

really shows the significant drop that happened  during covid and then the huge increase after that  

as people decided they couldn't bear to be in the  houses anymore and they want it to be somewhere  

else and then the blue line is 2021 pretty up and  down the entire year as you can see and kind of  

the difference with the red line which is 2022  is that it starts high and overall it's dropping  

if this continues to go down and supply continues  to go up you can imagine that there'll be a  

lot more homes on the market and things will  have really shifted for those people that do  

decide to go out and buy they'll have a lot more  choices and they'll be pressure to lower prices  

again before I let go of this chart just take  note again that this is may 1st so this data  

is basically only covering up through April again  it'll be interesting to see where that line goes  

next in the next couple of months as interest  rates have already significantly risen and a lot  

of that may not be completely baked into these  statistics yet so the last thing I want to talk  

about is something I talked about last week which  is how many sellers out there are lowering their  

house price this is after they've already listed  it they've probably listed it for some period of  

time they're not getting the kind of interest  in their home that they expect and so then they  

do the painful thing of lowering their house  price it's a really tough for sellers to do and  

we should never underestimate how important this  is as a statistic and it is a leading statistic  

because sellers have to lower their prices before  you eventually see that the price of houses are  

coming down so again let's look at some statistics  from redfin okay here is the redfin chart and you  

can see that the title is that four percent  of listings had price drops this is across the  

whole united states and while that might not seem  like a huge number look at the way this is working  

look at the gray line that's 20 20. and you can  see the huge drop from covid and then the quick  

rebound from that as people decided to move  the blue line is 2021 and you can see in 2021  

that it started out low and that you can see it  went quite high in August September or October  

November which isn't surprising because that's  when people realize they're not going to sell  

their house during the summer and so that would  be the time they would typically lower the price  

because they've already missed what they thought  would have been the hottest market and then it  

fell way down after that because the market was  picking up with our low inventory and people  

realized that they were able to get these higher  prices but look at 2022 the red line wow that is  

incredibly steep right up to this may 1 date which  as you know includes basically up to April data  

but this is unprecedented usually home prices  don't get lowered in March and April and May  

because people know that we are approaching the  hot selling summer months why would you lower  

your price now when you're about to have a ton  more buyers at least seasonally that's what tends  

to happen every year but this time people are  lowering their price in advance of that summer  

so these people were already seeing such  slow interest in their home that they were  

already willing to drop their price in the face  of the busiest time to purchase a house which  

is the summer months so this is a very important  statistic that is a leading indication of what is  

to come and that is likely lower home prices if  you're thinking of buying a house in the next 9  

day or the next 90 days i can provide you with  a referral to an excellent realtor anywhere in  

the united states and also in 20 countries but  if you're thinking about buying or selling in  

Marin county reach out to me i love to help  people make a smart move and remember if you  

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