Momentum Explained

Momentum Means A Lot

My proprietary “Swing Indicator” requires both commodity trader and real estate broker mindsets.  Real estate is a commodity.  The future value can be tracked and (in theory) projected.  But real estate is not as liquid nor trade in short durations.  Therefore, the calculation for a single house, larger community, house-type, or zip code must be tailored for “monthly” rather than “hourly” changes.  Beyond that, it’s a simple moving average.

The Swing Indicator, shown below, has a shape which resembles the oscillation of a heart monitor.  Like a heart monitor, the swings of systolic and diastolic measurements can point to health issues.  In my Swing Indicator, the number of “Up Ticks” as compared to “Down Ticks”, in an aggregated form, can point to real estate market “health” issues.  It may also merely depict seasonal swings that recur every year.  Often and lately, the shapes are results of the corruption of the market by external forces.

Fair Oaks Median and Momentum

This chart shows the historical Fair Oaks median price, its momentum, and the Sacramento median price.  In each month, the momentum of the price change will be up, down, or unchanged.  The numerical value of the momentum will also be greater, equal to, or less than zero (the X axis for momentum).  Each state of a commodity’s momentum is meaningful.  When a commodity trader sees momentum of a commodity’s price cross the zero axis, it depicts a “SELL” indication if going from positive to negative (Fair Oaks p, Sep 2006).  Conversely, it’s a “BUY” indication if going from negative to positive (Fair Oaks p, Nov 1999, Sep 2012).

If a principal were to BUY at the Fair Oaks median price in Nov 1999 ($187,500) and then SELL at the Fair Oaks median price in Sep 2006 ($430,000), that would be a good return on investment.  Likewise, if a principal were to BUY in Sep 2012 ($249,750), a sale at the current Fair Oaks median ($418,000) would also be beautiful return.

Caution:  There are frequently temporary movements across the zero axis but should not be considered a BUY or SELL indicator – I call them “head-fakes”.

(Momentum is abbreviated as “p”.)

Zip Code Summary

The Swing Indicator aggregates all 54 median price momenta.  This summary below shows those zip codes where I specialize.  Green (UP) means the price momentum for the zip code ticked upward in that reported month.

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