Why Predicting Home Sales is Challenging

It might be reasonable to assume that we could predict how many homes will sell in a certain area with pretty good accuracy. Feed a model enough data and it should be able to predict how many homes will change hands. Even with our incredible computing power, predicting sales is very challenging.

We have a very deep amount of information at our disposal that relates to home sales. This would include but would not be limited to: number of households, number of existing homes, number of home starts, employment rates, interest rates, immigration rates, birth/date rates, and marriage/divorce rates. So why aren't home sales reliably predictable?

One reason is that some of the variables I listed are fairly stable (marriage/divorce rates), while others are more in flux (employment, immigration for example). So predicting home sales is actually an attempt to predict a whole basket of variables that are impacted by national and international events and trends.

One other reason is that some of the variables that impact housing sales are very difficult to measure. These are the matters of the heart, soul, emotion and minds of individuals and groups! Economists have a tough time measuring things like consumer sentiment even with surveys. If people feel confident about the economy, their personal finances and housing, they are more likely to buy a home and take on more debt. If they feel really bullish they may even find a way to buy a second home as an investment or a vacation property. If people have a more negative outlook they will behave a lot more cautiously which could include delaying a move.

Although some sales are close to being inevitable and necessary - think of estate sales where someone has passed away. There are many other scenarios where a household would strongly prefer to move, but it isn't absolutely necessary. A couple have their second child in their 2 bedroom apartment. They would like more space, but if they are worried about the economy, they may delay their home purchase and make their space work. A newly wed couple looks to start a family in their own home. If they are concerned about the housing market, they may stay with their inlaws for another year saving money. People are very malleable and resilient with their housing and can make a wide variety of living arrangements work. Sentiment can change relatively quickly. With "fear of missing out" playing a significant factor. Once houses start selling faster, and prices start rising, the same two couples in the examples above may decide to expedite their home buying plans. They may even do so excitedly, reflecting the change in sentiment.

The number of variables at play and the difficulty in capturing or understanding sentiment/confidence makes predicting home sales difficult. For the same reasons it is not possible with repeatable accuracy to predict how much home prices will rise or fall. We don't pretend we can do this. We apply our experience and help our clients navigate ever changing market conditions, so that they can achieve their housing goals. If you know of anyone that could use our advice or services, we always appreciate your referrals.

Thank you! Joe, Doug & Randal Real Estate Team