We're not buying "the market", we're buying one home within it!

I'm occasionally asked (by people who don't know me well), ""What do you think the market is gonna do"?  I politely answer that I don't really know but I do have strong and concrete ideas about the investments I've chosen.  So it should be about houses people choose.  Unless the market is super-heated (cost to own has gotten very far ahead of cost to rent), or your client is a short-term speculator, knowing the exact "bottom" or exact "top" of a market is largely irrelevant.  Instead, knowing the future cash flows of an investment property and being able to give an accurate comparison of ownership costs versus rental, are probably much more valuable for someone with a time horizon of five years or more.

How can you know the future cash flows that a property could produce?  There are two important factors that can help:
- Compared to the average over time, what percentage of average household income are houses selling for in the neighborhood?
- Compared to the cost to rent a comparable home, what will be the cost to own the property your client is considering?

Take a look at this article:http://finance.yahoo.com/real-estate/article/110501/real-estate-investing-the-best-and-worst-markets?mod=realestate-buy

Are you in a high or low risk market?  It shouldn't affect your success in selling homes but it is useful to be able to address it with clients as you help them see that they are buying a home, not "a market".  If that home is priced right (in line with its potential cash flows and contemplative of existing supply/demand dynamics), all parties will be served if you can provide the objective information that helps buyers and sellers agree on a mutually beneficial transaction.

Jeff L.