Use Economic Indicators in Residential Real Estate Investment
In the past, the use of economic indicators resided in the domain of governments, corporations, educational researchers, large institutions and sophisticated investors. These organizations understand the importance of being aware of current economic conditions and possibly data on regional, national and international trends. Economic indicators provide essential information, affecting consumers, renters, buyers, labor, business and investment strategies.
Consider the economic indices as an indispensable tool for any investor. Today, small business owners and investors have to employ economic indicators in their own investment analysis to help them determine the current economic situation, predict future economic prospects and make better decisions. Property real estate investors can benefit from the use of economic indicators in their real estate business.
Types of economic indicators
Economic indicators can be found in three types: accidental indicators, lagging indicators, and key indicators. The following is a description of each indicator:
Accidental indicators change with the general economy. Therefore, coincidence indicators provide information about the current state of economic affairs. Examples of consensus indicators include gross domestic product (GDP), non-agricultural employment, personal income, inventory and industrial production. Accidental indicators rarely use real estate investors to predict future economic events.
Delay indicators provide investors with insights about the movements in the economy when changes occur, setting a particular pattern or trend. Investors use long-term trends (where the economy has been) and behind-the-scenes indicators to adjust to current economic conditions. Leggings indicators include labor costs per unit of new home sales, home prices index, employment, corporate profits and output.
Do not rely on real estate indicators as a tool to predict future trends in the real estate market or the general economy.
Popular economic indicators
The many economic indicators that make just about every aspect of the economy possible, the statistics may seem overwhelming.
Some of the most widely used economic indicators used by real estate investors include the following markers:
Gross Domestic Product
Informed investors look at the growth of the general economy by looking at gross domestic product during a particular quarter as it provides a comprehensive measure of the US economy. It offers the total financial value of all goods and services for one period.
GDP data does not include financial value for international production. The US Economic Analysis Bureau publishes GDP data for the last quarter, on the last day of the quarter for GDP matrix.
Historically, the US economy has grown from 2.5 percent to 3 percent annually. When the economy or GDP exceeds the historical growth rate, economists consider this expansion as volatile and potentially inflationary.
When GDP growth falls below 2.5 percent or contracts, businesses stop buying new goods, stop hiring employees and quit jobs. In addition, consumers are also worried about their jobs and future prospects.
Uncertainty about the financial state of consumers usually leads to a slowdown in consumer spending. Consumer spending accounts for 70% of GDP.
Index of residential prices
This behind-the-scenes indicator provides a broad spectrum of movement at single-family prices both regionally and nationally. Domestic price indexes by experts and investors include data from the following entities: S&P / Case – Schiller, CoreLogic, Census Bureau, Federal Housing Finance Agency and National Association of Realtors.
Following the collapse of the housing market, domestic prices have fallen by an average 34%, according to the S&P / CaseSiller Housing Price Index. In general, a decline in home prices may indicate a need for market correction to exceed home prices or adjust home prices. Falling home prices negatively impact homeowners’ wealth and employment in manufacturing, manufacturing and other sectors of the economy.
For example, although construction workers in the United States comprise only six percent of the workforce, they comprise about 25 percent of workers who lost their jobs during the recession, followed by house prices. Were born after the fall.
Real estate investors who are willing to spend time and effort can easily understand the economic indicators and add valuable insights to their decision making. Remember, the measuring period – an increase or decrease in weekly, month or quarter data does not necessarily predict any upcoming recession or rise. To set the trend, Data will show a steady decrease or increase in data. Sometimes, statistics send a mixed message.