The market tightness index, calculated from data including list price, sale price and time on market, not only measures a seller’s bargaining power, but also has a short-term house price predictive power. Academic research has shown that the market tightness index can improve an economic home price prediction model’s performance in the short versus medium term. In other words, tracking the ups and downs of market tightness can help predict the trend of price in the following one to eight quarters.
GeoHome, a big data housing startup, built the market tightness index for Massachusetts and, after extensive analysis, has found that the predictive power of market tightness is also observed in Greater Boston.
In the 2006 housing crisis, market tightness fell sharply from the fourth quarter of 2004, while home prices fell in the first quarter of 2006. The five quarters’ difference between market tightness and price could give buyers/sellers enough time to respond – were homebuyers given such knowledge and information, they could avoid buying houses at peak value.
The tightest districts are neighborhood which is close to the urban core, bottom and middle tier markets.
Figure 1 demonstrates the market tightness around Greater Boston. The darkest areas represent hot markets, where buyers don’t have much negotiating power and most properties will be under contract within one week.
Cambridge, especially east Cambridge, supported by the rising rents, proposed expansion of the MIT campus and the ongoing relocation of several R&D centers from Chicago and Philadelphia, is one of the tightest market in the urban area. Brookline is another tight market, partially due to the inflow of international buyers, especially buyers from Middle East and Russia.
Somerville and Waltham, towns close to job opportunities and with an inventory of houses affordable to first-time buyers, are tight markets with expectation of rising prices.
The top-tier, most expensive markets, such as Weston, Back Bay and Chestnut Hill, are cooling down.
From the figure below, market tightness for the top tier has been comparatively slowing down since Q3 2015. Some properties in these markets have dropped their listing price by up to 10 percent. Sellers in these markets should prepare for long listing periods or consider marking down their prices. Considering the current, still historically low interest rates, it is a good time for buyers to move into these premier neighborhoods while negotiation factors are still in their favor.
Zhizhi Xin is GIS analyst with GeoHome; she may be reached at firstname.lastname@example.org.
This article first appeared on GeoHome’s website; click here to see the original post.