Taking the temperature of the housing market: hot versus cold markets

If you’re getting ready to buy or sell your home, it’s important to check the temperature of the housing market in your area to make sure the timing is optimal. Here’s what you need to know about how supply and demand determines market temperature.

Cold markets
The housing market is cold when there’s more supply than demand. This is the best time to buy because there are more homes available than buyers looking to purchase them. This means that you’ll have a greater selection to choose from and that sellers will be more willing to negotiate a lower price. You may even be able to purchase your dream home for less than the listing price. For all the above reasons, cold markets are also known as buyer’s markets.

Hot markets
The housing market is hot when there’s more demand than supply. This is the best time to sell because there are more buyers looking to purchase a home than houses available. This means that buyers will likely be willing to pay more than the listing price. Hot markets are also known as seller’s markets.

Neutral markets
A neutral market is when supply and demand are in equilibrium. It won’t favor either buyers or sellers.

MOI
Supply and demand in real estate markets is measured in terms of Months of Inventory (MOI). MOI is calculated by dividing the number of homes that were for sale during the past month by the number of homes that were sold during this time period. The resulting number is an estimate of how long it will take to sell all the homes for sale.

In a cold market, the MOI is six months or more. In a hot market the MOI is six months or less. During a neutral market, three to six months’ worth of inventory is on the market.