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Why Looking at Real Estate Price Charts Is Misleading


Real estate investors frequently refer to housing price charts to help analyze trends in the real estate market. These price data are typically the Housing Price Index, or HPI, provided by the Federal Housing Finance Agency. Also, you will often find references to the Case-Shiller Index, which is a composite of either 10 or 20 major metropolitan areas (Metropolitan Statistical Areas or MSAs). The Case-Shiller Index is commonly considered a fair measure of the U.S. housing market. However, smart investors will look at their local market data rather than national data. National real estate statistics are only relevant to macro-economic conditions and not very useful for your real estate investment in a particular city Ripple XRP Price chart.

The other problem is that real estate investors will look at housing price charts which are very difficult to utilize in making decisions about their investment (i.e., whether to sell or buy a property). That’s why so many investors lost properties in 2007 and 2008. Having access to data for your investment city presented calculated and presented in the proper way can give the investor clear signals when you should sell your property due to changes in prices in the real estate market. You will need to calculate housing index price changes, and then adjust those data for inflation.

If you look at the housing price index chart for Boston, you wold notice that the price index peaked at the beginning of 2006. But if you owned a property in Boston at the beginning of 2006 and looked at the chart then, you would not know if this was to be a peak or just a pause in the upward trend. Your investment property was about to suffer a massive decreases in price. In contrast, Looking at a housing price change chart would clearly show changes in prices and the dramatic change that occurred at the beginning of 2006:

Here is a link to the two charts for Boston, MA. the first chart is the Housing Price Index chart and the second is the Housing Index Price change chart (adjusted for inflation). The Housing Index Price change chart calculates the annual price change, with smoothing calculation and inflation adjustments. When the line is above zero, prices are increasing; and when the line is below zero, prices are decreasing.

Momentum: More advanced: a downward sloping line means the price momentum is decreasing and an upward sloping line means that the price momentum is increasing. The concept of momentum is commonly used is stock trading, where it is used to describe the trading activity increasing or decreasing with price. For housing prices, an example of a decrease in momentum would be a situation where prices were increasing, but at a rate less than the prior period of time. Using Boston as an example, in 1Q2005 the HPI had increased by 11.2% from the previous year. In 1Q2006 it had increased by 4.3%. Prices were still going up, but at a less rapid rate: a decrease in momentum.

Looking back in time, the indication to get out of the Boston housing market was reasonably clear in 1988 and 2006. But when to get into the Boston market and buy a property is difficult. Price changes can easily go above the price change zero line and then quickly cross back below the zero line (i.e., prices increasing-above the zero line and prices decreasing-below the zero line). The general concept is that you need to wait a sufficient length of time of price increases for that market, then purchase your investment property capturing peak appreciation periods. The trick is to know how long to wait, and decreasing your risk.

This was the challenge that I solved, out of which was born HousingPriceTrends. In an effort to educate real estate investors, I have provided a volume of historic price change charts for over 400 U.S. cities. Remember Warren Buffet’s rule #1: Never Lose Money. With the proper information you can sell your investment property in a market that has lost price momentum before your investment property loses money. There is always another city in which to invest where the price trends are in your favor. So, sell your investment property in a market that has lost price momentum before your equity starts to decrease. The secret is to only be in invested in cities where you can capture peak appreciation periods, and having clear signals when you should sell in those cities. Never get trapped in a national housing crash again, and never get trapped in a city where housing prices trends are not in your favor. The solution is to have access to the appropriate information.

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