Looking for Signs of a Market Top

Once upon a time, a sure-fire yellow (or red!) flag for frothy home prices was Realtors buying homes for themselves, either as investments, or to fix up and flip.

See, “Insider Buying & the Housing Market: Why Realtors are a CONTRARIAN Indicator.”

The logic: agents were most bullish (and financially flush) at the top of the cycle, which is when they tended to enter the market as Buyers.

Ergo, that’s when the smart money knew it was time to exit.

For market prognosticators watching for signs of another downturn, is what I’ll call the “Realtor Activity Index” still a good contrarian indicator?

Different This Time (Really)

At the risk of invoking the four most dangerous words in investing (“this time is different”), I don’t think so.

That’s for two reasons:

One. Low inventory and transaction volume.

Back at the 2006 peak, there were around 35,000 homes for sale in the Twin Cities.

Today, the number is less than one-third of that.

While that continued shortage of inventory has been great for prices, it translates into lower sales volume — and fewer individual commissions for area Realtors.

“The Newbie Factor” — Then & Now

Two. As a direct result of the drop in closed transactions, it seems like there are fewer new agents (“newbies”) entering the business today.

On the contrary, my (veteran’s) take is that today’s residential housing market has never been more competitive, with the best and most established agents taking market share . . . from everyone else.

While those elite agents certainly have the money to buy homes, my strong suspicion is that they — we — are¬†focused on handling transactions for clients vs. doing¬†flips and remodels . . .

P.S.: Want a good analogy for the above?

Think of the 2018 housing market as generating a bigger commission pie, but with fewer slices.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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