Before investing, keep in mind the ultimate goal: buy low and sell high. In order to sell high, demand must outstrip supply; in order to buy low, supply must outstrip demand. Sounds easy, doesn't it? It is until emotions get in the way. Successful real estate investors rely on fundemental market indicators, not emotions such as fear and greed, when making investment decisions:

1) Population trends: Extremely high inventories played a major role in the recent real estate bust. As long as the population is trending upward in a particular area then inventories will return to normal levels, providing a higher demand and a lower supply.

2) Employment levels: An effective measurement of population trends must incorporate employment levels. Areas with low unemployment and an expanding job market attract potential home buyers. Employment levels also give a feel for how the overall economy is doing in a particular area.

3) Personal income: Along with high employment levels, high personal incomes are a strong indicator of a good market. Areas with high personal income retain and attract more homeowners, increasing housing demand.

4) Affordability: Make sure personal incomes fall in line with median home prices. There's no sense investing in an area where nobody can afford to live.

5) Vacancy Rate: High inventories ultimately lead to high vacancy rates. When the supply of houses meets the demand, expect vacancies to decrease and the stocks of companies involved in real estate and homebuilding to rise.

6) New Construction: As long as inventories remain high, new construction remains dormant. Homebuilders won't build new homes unless they're confident they can sell them. New homes being built signals a housing recovery and time to invest in real estate related stocks.

7) Interest Rates: Investing in real estate involves the cost of the home and the cost of the money. Low interest rates create more potential buyers.

8) Financing Accessibility: An increase in the number of individuals eligible for loans increases the number of potential buyers. The ease for subprime borrowers getting loans partially fueled the most recent boom and the ensuing bust. Although banks have tightened up lending standards, they must lend money to make money. When lending restrictions are loosened, expect an increase in the number of potential buyers, and a corresponding increase in the value of real estate and financial stocks.

9) Media Sentiment: Negative reports on the state of the economy and on the real estate market have contributed to the general feeling of doom surrounding real estate. As long as the media broadcasts fear, many potential home buyers will be reluctant to buy, thereby decreasing the demand for housing and keeping the supply high.

10) Public Sentiment: Going against the public can be extremely profitable. Billionaire real estate investor, Greg Habstritt advises, "When most people are feeling greedy, be afraid; when most people are feeling afraid, be greedy."

As with any market, timing the real estate market may prove to be extremely difficult. It becomes less difficult when using investing fundamentals and key indicators to make decisions.

Learn more about this author, Trent Lorcher.
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