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Welcome to the 5 Minute Prime Podcast.
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Quick actionable tips to master personal finance and real estate investing.
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In just five minutes a day, we'll help you build wealth and achieve financial freedom.
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Hey Prime Investors, Martin Maxwell here.
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Welcome back to the 5-Minute Prime Podcast.
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Say a cheap market out loud.
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At a meetup, in a forum, to your brother-in-law, and you will get the warning within about a week.
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You'll never be able to sell it.
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Total confidence.
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Often from somebody who has never owned there.
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And I want to take that seriously for a minute because the thing it is pointing at is real.
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There absolutely are markets where you buy in an afternoon and spend nine months getting out.
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If you have ever tried to exit one, you know that is not a theoretical problem.
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It is your capital, parked, while the taxes and the insurance and the long guy keep running.
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So the warning is not stupid.
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It is just aimed at the wrong variable.
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And a warning aimed at the wrong variable sends you away from good markets and straight into bad ones that happen to be expensive.
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So let's look it up.
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County level sales data, most recent full month, which is August, covering about 2,900 counties, measuring how long the typical house takes to go under contract, listing to accepted offer.
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Closing adds a month or so on top of that everywhere.
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So the comparison holds.
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The typical American county, right in the middle, runs about 54 days.
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Now, two of the most warned about markets in the country.
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The county that contains Detroit, 22 days.
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The county that contains Cleveland, 25.
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Those are not mid-pack numbers.
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Those are near the front.
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And before anybody says it, yes.
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Fast can just mean desperate.
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A house sells quickly if you dump it.
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So look at what they got.
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Detroit's county sold at about 98% of asking.
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Cleveland's 99%.
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The typical county in the country sold at about 97.5.
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So they are not selling fast because sellers are running.
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They are selling fast and holding their price better than the average county in America.
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Okay, so is the warning just wrong?
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No, and this is the part that makes it useful.
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Sort the same data a second way.
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Not by price, by how many houses changed hands.
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Bottom group, the counties where about three houses sell in a month.
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Median time to sell, about 70 days.
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Top group, the counties where 320 houses sell in a month, 43 days, 70 down to 43.
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Straight down the line, every single step.
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No exceptions in the middle, no bouncing around.
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And it is not just speed.
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The same ladder shows up in what sellers actually get.
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In the thinnest counties, the typical house sells for about 96% of asking.
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In the deepest, just under 99%.
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So depth does not only get you out faster, it gets you out closer to your number, which is the part that hits your return.
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Now sort the same counties by price instead.
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Cheapest at one end, most expensive at the other.
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And look for that ladder and how long it takes to sell.
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It is not there.
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Fifty-seven days at the cheap end, fifty-two at the expensive end, and the middle groups land in that same narrow band.
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Five days across the whole price range of American housing.
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What price does move is what you get.
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The cheapest counties also sell furthest under asking.
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But that is a different question from whether you can get out.
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Sit with that.
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The variable everybody talks about, what the house costs, does almost nothing to how long it takes to sell.
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The variable almost nobody mentions is the one doing the work.
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So here is the substitution the warning makes.
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It says cheap, the data says thin.
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And the reason that swap survives is that the two usually travel together.
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Most cheap places in this country are also small, and a small place trades a handful of houses a month.
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Part of that is just size.
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A big county trades more because it has more houses.
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But size is what puts buyers in the room, and buyers in the room is the whole thing you need on the day
Load full transcript
you sell.
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So if you have only ever met cheap and thin, cheap becomes a perfectly good shorthand, right up until you meet a market that is one and not the other, which is exactly what those two counties are.
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The county that holds Detroit is in the top 1% of the entire country for the number of houses that trade, and roughly the bottom third for price.
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It is cheap and it is deep.
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That is not a contradiction.
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It is a big old metro with a lot of housing stock and a lot of people moving.
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And I want to be fair to the warning, because it is dead right about the other kind of market.
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A county where the typical house is$150,000 and three of them sell a month is genuinely hard to exit.
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Not because it is cheap, because when you list, there may be no buyer that month.
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And there is no such thing as a market price when three things trade.
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We have been here before, on the rent side.
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A market with only a handful of rentals in it does not really have a market rent.
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It has the middle of whatever few listings happen to be up when somebody measured.
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Same disease, different symptom.
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Thinness does not just make a number unreliable when you are buying.
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It makes the exit unreliable when you are selling.
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And if you are listening to this sitting on a property in exactly that kind of county, don't panic, and don't list it Monday because of a podcast.
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Nothing about your asset changed this morning.
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What changes is your plan.
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A wider price band than you would use in a deep market, a longer runway before you need the money, and a realistic answer to who the buyer actually is.
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Maybe that is an owner-occupant.
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Maybe it is the neighbor.
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Maybe it is a rent-to-own deal, a lease option, with the tenant already in the unit.
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A thin market does not mean no exit.
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It means the exit is a decision, not an assumption.
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Now let me be honest about the limits of what I just told you.
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Because I do not want you walking away with a new rule that is as lazy as the old one.
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Across individual counties, this relationship is real, but it is weak.
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It sorts the typical county, it does not predict yours.
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And a county is a big place.
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The number for the county that holds Detroit is not the number for one block of Detroit, because the suburbs are in there too.
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So look yours up at the finest grain you can get.
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And there are clear exceptions sitting right in that same list.
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The county that holds Birmingham trades plenty of houses and costs more than the other two, and it is still the slowest of the group at about 56 days.
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So this is not buy legacy cities.
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It is narrower and more useful than that.
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The variable you were handed is the wrong one, and the right one is cheap to look up.
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Here is your challenge for tonight.
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Take whatever market is on your short list right now.
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Do not look at the median price.
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You already know it.
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Find how many homes sold there last month and how long the typical one took.
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And whether the houses that sold look like the one you would own.
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Any big listing site has a market page for each county with both numbers, or your agent can pull them in two minutes.
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If that county trades a dozen houses a month or fewer, you have found something real, and that exit plan we just walked through is yours to write.
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Before you buy, not after.
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And if it trades hundreds, then whoever told you that you would never be able to sell it was repeating something they heard.
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We have said it before, a number the other side hands you is not diligence.
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A warning at a meetup is that kind of number, except nobody even wrote it down.
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Put the market back on your screen and run it like any other.
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The screen you inherit is somebody else's homework.
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Do your own.
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I'm Martin Maxwell, this has been the Five Minute Prime Podcast.
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I'll see you next episode.