Can REALTORS Predict The Future?

January 27, 2015

by Mike Simonsen

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Yesterday, the National Association of Realtors released it’s monthly survey of REALTOR confidence, which I noticed in this tweet:

Realtors are more confident. But what do they know, right?! Does Realtor confidence tell us anything about the future?

It turns out, Realtor confidence is remarkably predictive about the housing market. When I give talks, I cite this as a marvelous example of Wisdom of the Crowd. Individually a given real estate agent may be wildly optimistic or pessimistic. But taken together, these professionals know exactly where the market is heading. An agent is optimistic when she sees demand. Demand leads to higher home prices. Look at this remarkable correlation.

NAR Realtor Confidence Index vs. Altos Research 20 City Composite Price. Both Series for Single Family Homes. Y-axis not zero-scaled

 
January 2011 was the absolute trough of the housing bust. However, REALTORS noticed a slight change a few months prior and expressed this in their 6 month outlook. If you’ll remember back to that time, this change in optimism is especially notable. In Q1 2011, the housing headlines were calling for Armageddon. The tax credit expired in April, 2010 and housing demand evaporated for the rest of the year. Prices were weak. The lagging data that feeds the headlines was still negative well into 2011.

But REALTORS in general don’t rely on the headlines. They respond to whether the phone is ringing. And in January, 2011, the phone started ringing – just a little bit more. Prices followed. Then in early 2012 and again in 2013, the Realtors really felt the surge. Home prices rocketed forward. Striking stuff.

Where does that leave us for 2015? January is off to a strong optimistic start. Pay attention.

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