Buyer/Seller Ratio - Relevant?

Question

A French Zillow-ish site (MeilleursAgents.com) has mapped out the buyer/seller ratio for its markets. They consider it a more reliable indicator of where the market is going than anything else.

Their rule of thumb:

more than 3 buyers for every seller: appreciating market

2-3 buyers for every seller: stable market

less than 2 buyers for every seller: depreciating market

The fluctuations are impressive: Paris went from 6 to 1,4 buyers for every seller in a few years. Because of this, they expect the prices to drop double the official estimates.

Now I wonder, is this a reliable indicator? Does anyone have experience with this, because google only talks of this indicator for stock options.

Thierry Van Roy · Answer

As opposed to price levels, number of transactions, interest rates and so on. One reason I think of is a reported market price doesn't mean it actually gets sold. When the market is locked up, neither seller nor buyer is willing to budge, often because there aren't that many buyers. But if there are a lot of buyers (think Phoenix), then the market moves, one way or the other.

What surprised me is their indicator predicting twice the price drop of official notary statistics.

And their methodology is probably your standard statistics and data mining.

Mehran K. · Answer

More reliable than what other method? On the surface, without digging deeper, it all boils down to supply and demand. All the other market indicators people watch, are just things that affect the supply & demand.

How are they keeping track of exactly how many buyers there are in the market?