How to Spot a Healthy Housing Market

Houston-based real estate consulting firm Metrostudy uses "drive-bys" to help it gauge the health of the residential market in different U.S. metro areas. Employees drive through newly built—or still under construction—housing developments from Texas to Florida and begin observing.

If there are toys on a house's front lawn, for example, that is a good sign that a family has moved in. Another positive sign is if a garden hose is attached to the side of the house. Not only is the home occupied, it also has an owner who cares about his or her property.

Among the bad signs are the absence of curtains in the windows, a high number of empty lots, and newly completed but clearly vacant houses. Metrostudy researchers say these are indicators that a developer may have badly overestimated demand and could soon be saddled with inventory.

Brad Hunter, chief economist of Metrostudy, is projecting double-digit increases in new-home prices for the remainder of 2013. He sees the speculative excess mostly gone from the market. In 2014, though, Hunter forecasts that new-home prices will increase only 6 percent as interest rates continue their upward climb. He concludes, "Mortgage rates could pose a challenge to affordability."

Source: "To Figure Out Where Real Estate Is Headed, Start Driving," Business Week (Aug. 5, 2013)