Curtis Roddy, CEO @ RealTrac Info Systems, on Predicting Markets

While real estate markets will certainly experience some fluctuations over time, they aren’t generally subject to the same volatility as stock, bonds, securities or other types of investments. That being said, there are still significant fluctuations in the real estate market that can have a significant impact on profits. They just tend to happen over a longer period of time and you can generally still make a tidy profit in spite of them. Which is good, because markets are so hard to predict. Here are 3 factors that make it difficult to predict fluctuations in real estate markets.

The wide range of factors that affect the market

Most securities are affected by a very narrow set of influential factors that are fairly easy to see and understand. If the CEO of a major corporation is suddenly involved in a scandal, you can expect stock prices to plummet. If a company announces a revolutionary new product, you can expect stock prices to soar. Real estate markets are influenced by a much broader range of factors that make it difficult to predict. If a tech giant announces plans to open a new corporate headquarters, you might expect home prices in the area to soar. If the area is already experiencing a job shortage, however, the expected influx of new employees may not happen, which may result in only a minor fluctuation in home prices.

Confirmation bias

Human error actually creates the biggest obstacle to predicting any market, and real estate is no exception. In short, you see what you expect to see. If you believe that home prices are rising, you will look for evidence that they are and you will most likely find it. It is incredibly difficult to look at any market with truly neutral eyes and see what is really happening, not simply confirmation of what you think is happening.

Trends move much more slowly

The smaller (or less expensive) a product is, the more movement there will be in the market. For instance, automotive manufacturers can change paint colors each year based on market trends and add features and upgrades that convince consumers to upgrade every few years. This leads to annual movement, whereas businesses that sell smaller items like smartphones or computers may experience greater movement on a quarterly basis. A house takes a year or more just to build and it can take just as long to sell one home and buy another. That makes people more likely to stay put, which also makes the market harder to predict.