One critical element of becoming a trusted real estate advisor is your ability to analyze and interpret local real estate market data to identify trends and forecast future activity. The most difficult part of doing this, is keeping the results of your analysis simple enough for everyone to understand. Instead of overwhelming your contacts with complex information, focus your analysis on the four most important indicators. Your analysis should include the following:

1. Supply— The number of listings

• Compare the most recent month to the prior month, what was the percent change?
• Compare the most recent month to the same month a year ago, what was the percent change?

2. Demand—The number of sales based on closings

• Compare the most recent month to the month prior, what was the percent change?
• Compare the most recent month to the same month a year ago, what was the percent change?
• How Many—Divide the total number of sales year to date by the number of months to determine the average number of sales each month.
• Determine the average number of sales for the same period last year by using the same formula above.
• Calculate the year over year percent change in sales by comparing the average number of sales last year to the average number of sales this year.

3. Month’s Supply of Inventory

• This can be determined by dividing the total number of active listings by the average number of sales in the above section under supply.
• Compare this number to the average five to six month supply of inventory in a healthy market, keep in mind appreciation won’t occur until we get back down to five or six month supply in the overall market (the luxury market is higher, usually eight to ten months or more).

4. Price Per Square Foot

• This number can be calculated by adding up the total sales volume of all homes sold this year.
• Then add up the total living square footage for all homes sold this year.
• Divide the total sales volume by the number of living square footage to determine the average price per square foot.
• Use this formula to calculate the average price per square foot during the same period last year.
• Compare this year’s average price per square foot with last year’s.

It’s important to get the results for the four indicators above for both the entire MLS or area and for the specific neighborhood, city, or town. What most people hear about in the media is usually the results for the overall area. By drilling down and getting the information for a specific neighborhood, you are giving your clients the best information possible. Do not mix single family data with multi-family data. Analyze for either one or the other but not both.

Why should every home owner care about this information?

1. It directly effects the price of their home which is their most important asset.
2. Their business is directly impacted by these trends. The economy won’t recover, nor will their business improve until the real estate market improves.
3. They can talk intelligently in social situations about one of the most popular topics, real estate.

Use this information with everyone; your buyers, sellers, farm, and all contacts. Remember to update this information monthly and email it to all your contacts every month. Congratulations, you have just branded yourself as being much more sophisticated then anyone else in real estate. You are now officially a trusted real estate advisor.