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'It's about to hit the fan': One of Sam Zell's favorite indicators signals real estate market top

There’s a simple statistic so powerful that one of the most successful property owners of all time uses it as a real estate buy and sell signal. And right now, it may be indicating that now is the time to sell.

Membership in the National Association of Realtors (NAR), the largest organization of real estate agents and brokers in the US, rises and falls with the overall real estate market, notes Constantine Valhouli, founder of data firm NeighborhoodX.

He says the relationship between NAR membership and market health was first brought to his attention several years ago by Sam Zell, chairman of Equity Residential (EQR). According to Valhouli, Zell has a knack for timing major sales at around the peak of the market and just as NAR membership is at a top.

For example, Zell sold his Equity Office Properties Trust to the Blackstone Group (BX) for $23 billion in February 2007. At the time, NAR membership was at 1,316,060, just off its October 2006 peak of 1,370,758, based on the organization’s data.

Source: NeighborhoodX
Source: NeighborhoodX

“Those numbers that you see are spiking as a result of people saying, ‘There’s easy money to be made here,’ so people are getting their real estate agent licenses,” Valhouli explains. “And you’re seeing people chase that easier money which might suggest that the market’s overheated.”

By September 2008, Lehman Brothers folded in the wake of the housing market collapse, triggering the financial crisis. But at that point, the NAR was already down to 1,251,826 members.

As Valhouli points out, the peak and subsequent drop-off were also pronounced in states like New York, Florida, Texas and Massachusetts.

NAR membership hovered around 1 million from 2011 to the first half of 2013, with a low of 963,455 in March 2012. Since then, the realtors’ organization has seen its roster increase again.

In October 2015, when NAR membership reached 1,165,746, Zell sold once more, this time disposing 23,000 apartments for $5.4 billion. For Valhouli, that could indicate trouble may be around the corner.

“If we look at the timing of Sam Zell sales against the peak previously, it tends to be three to four quarters out,” he said. “He sold … a major portfolio in the fall of last year, so it looks like it’s about to hit the fan.”

Disclosure: The author is a member of the National Association of Realtors.