How Do We Know the Market Is Shifting?

Every buyer and seller wants to know whether the market is about to change.

The challenge is that real estate statistics tell us only what has already happened. When there is a shift in the market, sales prices show it, but not for at least a month or two after the market shifted. That's because prices lag when the properties went under contract by that long.

Statisticians have a way of identifying meaningful changes before the changes are visible. They call it "the signal in the noise."

The illustration below shows how it works. Most market movement is simply normal variation—or noise. But when the data behave differently than normal, they create a signal that the market is shifting.

That's why our newsletter often identifies a shift a month or two before prices start falling, or before they start rising. As a buyer or seller, that knowledge is invaluable.