John R. Wood

When we think of a healthy housing market, many of us may think of home prices increasing.  On the surface, this sounds like a valid assessment. However, as we know from the 2000-2006 housing bubble, we know this is not true either.

According to Ken H. Johnson, Ph.D. — Florida International University, it is market liquidity and not pricing that indicates the health of a housing market.  “Liquidity has been defined in many ways but it basically boils down to this question”, says Dr. Johnson. Can an individual seller, at a time of their choosing, successfully market their property at or near market value?  What really matters, regardless of outstanding inventory, is the likelihood that a property will close. 

All of the data necessary to proxy a particular market’s liquidity (and thereby its health) is available on the daily “hot sheets” of almost every MLS in country.  Since liquidity is really just a batting average all that needs to be done is total the successful transactions (closed properties) and divide these by the failed listing transactions. Dr. Johnson thinks the resulting number is a very close approximate to the probability that any given property listed in that market will close and an increasing trend in this number indicates improving market health.

He goes on to explain that while pricing trends may not indicate the health of a housing market, for almost every sell in an increasing market, there is a repurchase at a higher price.  For almost every sell in a decreasing market, there is a repurchase at a lower price.  Thus, pricing is a “double edged sword”.  Gains/losses on a sell are almost always accompanied by higher/lower repurchases.  Thus, pricing trends can never indicate the health of a particular real estate market. 

 Instead, it is market liquidly, which can be easily proxied, that actually indicates market health.  “After all, the real goal is for a seller of property to be able to transact at or near market value with a high degree of certainty”, states Dr. Johnson.

This is an interesting concept to ponder. Additionally, your John R. Wood Agent can help you identify your buying or selling goals and help you understand what to expect in the Southwest Florida real estate market.

John R. Wood Realtors – The Symbol of Local Knowledge

Source: kcmblog.com