The HousingAlerts system relies on repeat residential property transactions because for TA to work, you must have absolute accuracy in the underlying database. The reason is simple. TA “tracks” subtle changes and, in a sense, magnifies them.
Although most local real estate cycles seem to hit both commercial and residential properties around the same time, commercial may have different time lags.
There are not enough “repeat” transactions in commercial markets to develop a statistically valid sample size that will produce the kind of accuracy needed for Technical Analysis, so we use residential as the next best thing! Of course, it makes a huge difference what kind of “commercial” property we’re talking about.
There is (obviously) a more direct timing correlation between commercial and residential real estate if you’re referring to “small” commercial properties like a 5 or 10 unit apartment project rather than a 100k sq. ft. ‘downtown’ office building.
Investing in commercial “retail space” is tightly correlated to the health and trends of the local residential market.
Generally, “dead” housing markets are also likely to be “dead” or weak commercial markets; strong or emerging residential markets indicate much stronger upside potential for commercial.
When it comes to nailing residential home value trends, there is nothing better than HousingAlerts, and residential trends are a useful proxy for commercial in many ways.
In other words, if the particular commercial market you’re evaluating has a “sick” residential market or the long term trends are weak – you should apply very different investment evaluation criteria compared to a similar commercial property in a strong market (i.e. – discount the future cash flows at a higher rate, be more conservative in the appreciation assumptions, avoid that market entirely, etc.)
I would use, among other tools, the same market selection criteria to invest commercially as I’d use for residential.
Commercial property generally follows these same trends. There are many commercial markets I wouldn’t waste any time with based solely upon their long-term residential market trends…. and there are emerging residential markets I’d be very interested in exploring for commercial opportunities.
In short, I am not aware of ANY system that is better at predicting COMMERCIAL real estate than HousingAlerts.
The best example was that slide near the end of the webinar you mentioned. That was 100% RESIDENTIAL data and you saw how closely it correlated to the Commercial market.
Last update of the article: 06/02/2020.
