8 Critical Statistics for Profitable Real Estate Investing
There are 8 critical statistics that investors need to know to determine if a market is suitable and if it’s timing will support a buy and hold strategy. Knowing the current status plus understanding the past metrics and forecasted future will help investors make more informed decisions. “The Trend is your friend”!
In addition to the 8 critical statistics, I share some of the many online resources for market investigation. As the majority of my clients are focused on investing in Canada, the online resources are mainly Canadian. However, The US online resources are massive in comparison to Canada and I will share some of those US resources at the end.
1. Economic Growth and GDP:
Real estate has a direct correlation to the economy. Real estate is a lagging indicator and thus it is a function of the economy. Think of it this way, when the economy grows, so eventually do real estate values. Why? In short, when there is big money being spent in a market whether private, public or both, this usually creates jobs, which in turn, naturally attracts people to work and those people need to live somewhere. These people typically rent first and then eventually purchase homes. The reverse is also true when the economy shrinks so do the jobs and real estate values can suffer as well. “Follow the Money.”
Online resources:
- https://www.conferenceboard.ca/insights
- https://creastats.crea.ca/
- Provincial websites: (google search-province and economic development)
- Target city’s Economic development offices: (google search-city and economic development office)
2. Job and Unemployment rates:
As I alluded to previously job growth will have a direct impact on the health of real estate in the market, especially starting with the rental housing. An alternative, but sometimes more accessible statistic will be the unemployment rate. However it is recommended that you also review the employment participation rate to get the whole picture. With increased job growth or job loss, vacancy rates are usually the first indicator that things are changing. What are the job sectors that are growing and why?
Online resources:
- https://www.conferenceboard.ca/insights
- https://creastats.crea.ca/
- Provincial websites: (google search-province and jobs or labour)
- Lending institution websites – RBC, CIBC, Scotia etc.(google search institute and-economy, jobs)
3. Population and Demographics:
Housing market growth is dependent on the population. Population growth is a result of migration between provinces or international migration. The stats that are reported are usually reported are at a provincial level but for larger urban centres the population information is often available. This can include forecasted growth as well which is very important for the future of the investment.
Demographics also play an important role in understanding the housing present and future housing needs. Is the population, as a whole, getting younger i.e. more young people moving there or is it greying? This is an important question to answer.
Online resources:
- https://www150.statcan.gc.ca
- Provincial websites: (google search-province and population)
- Target city’s website: (google search-city and population or demographics)
- https://www.statista.com/statistics/446061/canada-single-population-by-province/
- Other various statistical websites (google search target city and population)
4. Average/Median Prices and Price Ranges:
There are a number of statistics that will fall under this category because they’re all interconnected. The main ones that most people refer to are Average and median prices. These alone have some value for a moment in time, but when you can track the trends and forecasts, then these measures can be valuable in understand how that particular market is functioning. The real value becomes more when you narrow the focus on the particular housing type in which you are most interested so that you can better understand that housing segment. There can be variations between communities with the market. A recent example is the phenomenon of people moving to the suburbs in search for more space at a lower cost due to the effects of the current pandemic.
Paying attention to the price ranges also is a helpful stat to understand to see if it is rising/falling or tightening.
One other helpful stat to know that ties in with this section is the affordability index, which can tell you if housing is becoming more or less affordable to buy as this can affect the rental market vacancy and rental rates.
Online resources:
- https://creastats.crea.ca/
- Various Local real estate board & association websites such as REBGV, FVREB, EREB etc.
5. Days on Market and Sales to listing ratios:
This is a very helpful stat in understanding the how the market is trending for the various housing types. When you know the number of days it takes to sell you can tell if the housing segment in which you are interested is selling slower or quicker than it has in the past.
Absorption rate or sales to listing ratios are helpful to understand the health of the real estate market. Is it a, or is it trending to be a buyer’s, seller’s, or normalized market?
When you combine Days on Market with the sales to listing ratios, you gain a better understanding of the market trend for each housing type. Understanding these combined trends can save you literally thousands of dollars when negotiating a property sale or purchase. Some investors will also look at months of inventory to better understand the market health.
Online resources:
- Various Local real estate board & association websites such as REBGV, FVREB, EREB etc.
- Various specific market real estate agent websites in your target market
6. Rental Rates:
This statistic is especially important to understand when investigating the market. You need to know if the rental rate will financially support buying and holding on to the property. The point to buy and hold is to generate monthly income above and beyond just covering the related operating and financing costs. To understand whether the rental rates are increasing or decreasing and for what housing type can significantly help you in making the correct choice of whether to invest in that market and in what housing type will work best for you. Rental rates can have a profound effect for buy and hold investors. You want to price your rents correctly for best investment performance for the short and long term.
Online resources:
- http://rentalhousingindex.ca
- https://rentals.ca/
- https://www.rentseeker.ca
- https://www.padmapper.com/
- https://www.walkscore.com
7. Vacancy rates:
Understanding what the vacancy rates are and how they are trending for the market in which you are interested is imperative for buy and hold investors. Vacancy rates can be affected by so many of the above mentioned statistical factors such as: the economy, job growth, population growth, Housing prices and affordability, housing inventory or supply vs. demand, rental rates and more.
Online resources:
- Target market realtors & property management firms
- CMHC (note: usually it’s historical data but there are some forecasts)
- https://www.rentseeker.ca
8. Passive Appreciation Rate:
Passive appreciation is the rate at which the various housing type values increase. There is a natural appreciation that happens due to inflationary components within the economy. Some property types will also appreciate at higher rates than other property types i.e. single family dwellings (SFD) vs. condos due to the fact that a SFD will have a larger land component included in the entire property price. It is passive as you can’t really control the market appreciation rate. Again there are many of the above mentioned statistical factors such as: the economy, job growth, population growth, Housing prices and affordability, housing inventory or supply vs. demand that will affect the passive appreciation rate. When investigating the viability of a property investment it is wise to look at a low appreciation rate as well as the current rate which may be much higher for the reason that market appreciation can ebb and flow. Sometime due to local economic events values can actually decrease for a short or longer term, and so it is important to factor this potential in your plan, because you don’t want to be in a position whereby you are forced to sell at a loss.
Online resources:
- https://creastats.crea.ca/
- Various real estate boards (like REBGV, FVREB, EREB etc.) website statistics sections
US Market
The statistical information provided above will be helpful for investors investigating Canadian real estate markets. For investors interested in US market there is a plethora of online resources with tremendous levels of details. Here are just four website to start with:
https://www.nar.realtor/research-and-statistics/housing-statistics
