For a real estate agent, it’s the question that never seems to go away: How hot is the housing market?
Nate Sumner, a Realtor for Pacific Union GMAC Real Estate in the Marin County, Calif., community of Mill Valley, has an answer.
His Marin Market Heat Index, a measure of activity in the local housing market, has been gaining steam among real estate professionals and consumers in the region. Twice each month, Sumner gives a presentation to other agents in his office to update them on the index, and he uses the index to explain market conditions to his clients.
As some formerly raging housing markets have begun to slow down and even reverse across the country, home buyers and sellers and real estate professionals want to know the current state of the market, and Sumner said he believes his local index could be adapted for use in other markets, too.
The index is intended as a snapshot of buyer competition for listed homes – a gauge of market intensity. To compute the index, Sumner adds the number of closed residential sales in the past 30 days to the number of current, pending residential sales. He then divides this sum by the total number of active home and condo for-sale listings.
He updates the overall Marin-area index almost daily, and runs more detailed reports on individual communities twice monthly.
A high index above 1.25 indicates a seller’s market in which there are lots of buyers bidding for homes, and opportunity for multiple offers and elevated prices. An index of 1 represents a balanced market that is in equilibrium between a buyer’s market and a seller’s market. And an index number of 0.8 or below indicates a buyer’s market, in which properties can sit on the market for longer than usual and sellers may need to drop prices to attract buyers.
“By looking at the way this index is working I’ve gained confidence that it is put together in a way that gives us some real validity. It’s not about value, it’s not about appreciation, it’s about one thing: How is the interplay between buyers and sellers playing out right now in one particular market,” Sumner said.
“I had to be convinced that this really was a truly valuable thing. I started it out just sort of fiddling with it. In the last six months I became convinced that there’s something here of value – especially to my clients, especially when the market is undergoing some fairly significant shifting. I believe in this data. I trust it.”
For Jan. 18, the index stood at 0.67, one of the lowest ratings since Sumner released the index in spring 2002.
Marin is a notoriously high-priced region in the state and nation, with median home prices reaching $809,000 in November 2005, according to DataQuick Information Systems, a real estate research and analysis firm. That represents a 9.5 percent increase in the median price since November 2004. Marin area sales, though, slipped 12.6 percent in that time, DataQuick reported.
Sumner began to collect data for the index in 2002, and he began to share the information with other agents and clients after a year or two. He began publishing the index on the Web, at MarinHeatIndex.com, in September 2005.
“I named it almost as a gag name. The perpetual question clients have is, ‘How hot is the market?'” he said. And it stuck. “It has gotten more respect as it has gotten more use. It has proven to have the power that I’ve been looking for – to give one a real sense of when the market is shifting, right as it is shifting. The data we normally get to look at is always backward looking.”
The seller’s market really seemed to take off in the region in December 2003, according to the index, and the market chilled quickly in September 2005 and is now in a buyer’s market phase.
While industry analysts typically refer to a strong seller’s market as a good market, Sumner said that’s not necessarily the case.
“Buyers have had a miserable time for the last 2 1/2 years,” he said, because of the rising cost of homes. You could sell your house very quickly and at a terrific price, (but) if you had to turn around and buy a house you were in trouble. The current situation is maybe a little slower than we’d like it to be. Balance is a better thing,” he said.
“Knowing what’s going on in the market is the important thing. Be aware of what the market is doing right now and act accordingly,” he said.
For some individual communities in Marin County, the index is skewed by very high-end homes and low numbers of home sales, Sumner said, while the overall Marin County index contains more data. His MarinHeatIndex.com site allows users to view the current and historical heat index by city, price range, and housing type (single-family dwelling or condo).
“I’m really finding it a useful tool in helping buyers and sellers. This is turning out to be probably my most important source of data in counseling buyers and sellers, and I’m getting good feedback from other agents. I’m planning to push this in front of a lot more people in my local market,” Sumner said.
“I think it’s at the point where it’s ready – not for primetime – for local time. The next step is to see if I could get it so that it is of interest to any market in the country that has a (multiple listing service). I can envision this being regional or national. I can see the potential.” Already, he has pursued intellectual property rights for the index and is considering licensing arrangements.
There are some loyal fans of the index – “some of my clients … have become a little addicted” and frequently check the Web site, he said.
As with many real estate professionals, Sumner never intended to enter the industry, though he has been an agent for the past 16 years. He earned a doctorate degree from Brown University in American Civilization, and has taught American literature and history. Sumner also previously served as a museum director, and as administrator of grant programs at the National Endowment for the Humanities and the New Mexico Endowment for the Humanities.
Sumner said he finds some inspiration for the index from his past jobs. While at the National Endowment for the Humanities, his role was to encourage the use of the humanities discipline in a public context – to apply the humanities to issues of public and community policy. He sees this as a parallel to his sharing of the index. “I come by the urge to take resources to the public and to make them as valuable and as useful to the public as possible,” he said.
“I’m happy to share (the index) with other agents, because I have a philosophy that you don’t compete with your competitors … we all will find our own clients. Your competitor is your colleague,” he said.
The index has boosted his real estate business, even though it has been just a few months since the index hit the Internet, Sumner said. “It’s picked up significantly. I’m confident this is a business generator. I think it’s presented in a very easy to consume way. People are looking for this sort of guidance. In real estate, trust is the key thing.
“There feels to me to be a lot of continuity between (my) academic and analytical pursuits … and working with (real estate) clients. It’s not a different universe.”
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