Buyer Confidence? We need a formula!

A: The national economy and the stock markets have the Consumer Confidence # as one indicator of the current strength/weakness in the overall economy. What current or leading indicators does the real estate industry have; let alone the NYC real estate market? Sales of existing homes? Filed Mortgage Applications? This is a very fast paced city and to keep ahead we must wisely analyze the data for hints of the near future. We need more.

The measure of Consumer Confidence consists of 2 types of analysis: Conference Board Consumer Confidence & University of Michigan Consumer Sentiment Index

Both of these tools are used to gauge the current economy in the attempt to ascertain the level of confidence among consumers regarding their current financial status and the near future. The reports are occasionally just noise, but on occasion they can predict sudden shifts in consumption patterns that may be a sign of a more dangerous underlying problem developing. While the importance and use of these consumer confidence numbers are widely debated they still have the potential to move markets when they are released and that to me means they are still worthwhile to review.

The real estate market has the following barometers to gauge the overall strength of the housing market:

Existing Home Sales - On or about the 25th of each month, NAR releases statistics on sales and prices of existing single-family homes for the nation and the four regions. Beginning on February 25, 2005, these figures include condos and co-ops, in addition to single-family homes.

Pending Home Sales Index - This new index measures housing contract activity. It is based on signed real estate contracts for existing single-family homes, condos and co-ops.

Mortgage Applications (.pdf file) - A measure of registered mortgage applications filed will give us the status of the lending and re-finance activity

There are more indicators such as New Home Sales (doesnt really affect NYC as much), Housing Starts, and Housing Affordibilty but these dont really assess buyer confidence. Maybe Housing Affordibility does if one can argue that as houses become less affordible than buyers become less interested; but I want something different.

We need a Buyer Confidence index, for housing only, that will help us gauge the strength or weakness of what really makes our real estate market move; the buyers! Maybe there is an indicator out there that Im not aware of, and if so, please post it here for me to learn from.

If we were to design a formula from scratch that would asses Buyer Confidence in the Housing Market, what questions or data would we need to anaylze? Here are a few of my ideas:

1. Open House Activity - Why cant we poll real estate agents and FSBO's on the strength of their open houses. How many people showed up? 1? 10? 30? Are the buyers coming out to view properties or are they sitting and reviewing them online from home? If they are serious buyers, then they will come to your open house? In an environment where open houses are more active, the confidence level should be higher.

2. Ratio of Contract Price to Asking Price - What was the ultimate price that buyers were willing to pay for a property compared to its original asking price? This data is known well before closing so it should be analyzed and used as a metric to gauge the strength/weakness of the current housing market. Was the contract price 10% below ask? Was it at full asking price? Or, was it 5% over the asking price? In an environment where contract price is closer to or over asking price, the confidence level should be higher.

3. Poll Buyers at Open Houses? - The Consumer Confidence number is a monthly survey of 5,000 households designed to measure Americans' optimism about their current situation and the future. Why cant we do the same for buyers of real estate? It would have to be designed mainly to measure whether the buyer is comfortable with the current level of pricing of properties compared to what they can afford. In an environment where buyers are comfortable with what they can get for their budget, the confidence level should be higher.

4. Measure Buyers' Choices - We should also analyze data from buyers on whether they have 'CHOICE' in the current housing market? Are there a few different apartments that they like and can choose from that are in their price range? Is there nothing? Some type of barometer that combines quality, quantity, and price needs to be analyzed to see whether or not it is a buyers market or a sellers market in terms of choice. This would most likely vary between neighborhoods. In an environment where buyers have a lot of choice within their financial budget, the confidence level should be higher.

I'm sure I will think of more ideas after I publish this post, but Im not going to add anything on. I want to hear your comments on this. What am I missing? Is there already a measure of Buyer Confidence in housing, and if so, how is it derived? Or, am I crazy altogether and a measure of buyer confidence is either unuseable, inheritently flawed, or not feasible to gather? I want to know!

• Add to del.icio.us
• Digg this!
• Add to Technorati
• Add to Reddit
• Add to Newsvine