What is a “Hot Real Estate Market”?

As a member of the real estate industry, part of your job entails knowing the value of properties, and how that value stacks up to other comparable properties. This information of knowing “what real estate properties are hot” (or, knowing what parts of an area tend to sell for higher values than others) can be used any number of ways to understand your market, business opportunities, and how potential clients perceive what properties you’re looking to sell.

 

What is a “Hot Real Estate Market”?

As corroborated in definition by Village Properties & Associates, “hot markets” in real estate mean that the area’s properties favor those looking to sell their property. Those who have a home that they’re looking to sell, for instance, might have a something that’s highly valued for any number of reasons. That area might be undergoing a population surge (such as the one currently seen GREEN’s central office in Middle Tennessee because of Nashville’s popularity).

The Balance holds that demand is greater than supply, and therefore “buyers are often willing to pay more than list price. This means you can probably sell your home quickly and quite possibly for more than you ask for it.”

The website also offers that the formula for markets holds that…

  • Hot markets have less than six months of inventory (though this may still fall under the “neutral markets” category);
  • Inventory is lower than usual;
  • Advertisements are smaller (there’s less of a need to see them);
  • For Sale signs go quick, “comparable sales prices are lower than active listing prices,” which ties into the knowledge shared by Villages Properties that multiple offers might get made on a piece of real estate;
  • Consumers will see an increase in the median sales prices of properties;

Inversions of the parameters of a hot market (higher inventory than usual, for instance) would constitute a “buyer’s market” or a “cold market.” If the market is collectively understood to be typical and favoring neither buyers nor sellers, then the market is a “neutral market.”

The language used to define a market as “hot,” “cold,” or “neutral” is nothing more than industry-specific vocabulary of saying “buyer’s market” and “seller’s market” based on certain criteria. Readers of GREEN are reminded that the terminology used has nothing to do with the time of the year (though that can impact a property’s sale) and instead refers to “the fiscal temperature” of property value.

 

What Makes “Hot Real Estate Markets?”

An increase in the desirability of an area is the influence of various factors at levels local to the area, within the state/region, and on a national scale. CT Realtors breaks these down into four categories: social (such as that of Nashville after being labeled “The ‘It’ City” and in turn reaping the benefits of a surge in housing demand), economic (like an uptick in certain kinds of job growth), governmental/ political (a change in President, for instance), and physical/ environmental factors (such as weather events). Readers should also remember that housing markets may in turn affect these factors as well.

Outlets providing lists of current real estate markets considered “hot” will typically provide the cities/areas with a description of why they’ve made the list. One wanting to learn more about the parameters of hot markets can use such content to learn about the areas that made the list and how those areas compare to their current location.

Trulia (through Forbes) shares that hot markets may be created through a “sweet spot” determined by job growth and affordability, and lists supporting points like “vibrant downtown,” an expanding food culture, the area holding notable events, a growth in certain populations in an area, and other factors that underscore the label of “hot.” Those wanting to live near such cities may contribute to the trend in real estate by buying properties in adjacent cities, such as what the Middle Tennessee region has recently experienced with Nashville’s cultural elevation and economic progress. As the city becomes more popular, so too do some of the surrounding cities since not everyone can find the properties of their choice.

Cities within the same state may be influenced by the same factors, and articles listing hot housing markets may have several cities within the same state. CNN (also using information provided by Trulia) shared in a 2015 article that eight of the ten “fastest moving housing markets” were located in the state of California, with “San Francisco, San Jose, and Oakland taking the top three spots. At least 70% of homes in these three areas sold in two months or less.” Trulia’s housing economist Ralph McLaughlin also shared that fewer new homes get built in California than other states.

There can also be issues with the inventory of properties internal to the home. The New York Times shares that homeowners who “owe more than their home is worth” might be holding off on making such a sale.

 

How to Do Business in a Hot Real Estate Market…

Being successful in any business practice requires a dedicated business strategy that looks at the specific task. Real estate is no different in this regard, especially pertaining to those wanting to do well in a hot market. The criteria of a hot market includes 1) homes being on the market; 2) fewer units of properties; 3) more people looking to buy; and 4) people wanting to sell their homes with fewer obstacles (appraisals and inspections).

Hot real estate markets favor the one selling the property. If one is selling a property and wants to know just what kind of value they can get, then research through auction websites like (Zillow or Xome) or inquiries with realtors can give sellers examples of how much their property might be worth. Paying attention to these requested amounts should give a seller greater confidence in their asking price.

When buying in such a competition-heavy market, one may conclude that speed is essential. It is crucial to be able to “beat competitors to the punch,” to find properties and make offers. U.S. News offers three pieces of advice for home-buyers in fast markets: 1) setting up digital property alerts; 2) finding an agent who moves quickly”; and 3) making a “strong” offer. Likewise, Realtor.com offers a similar list of advice that includes a dedication to house-hunting, having all of the necessary paperwork on hand, and

“widening the search area” of your destination. Additionally, Better Homes and Gardens Real Estate’s advice for consumers may be condensed with the notion of “making the transaction a guarantee” by having cash on hand and getting pre-approved for loans (which may be interpreted as the general advice of “having the necessary paperwork”). One final, perhaps less encouraging element to note is that Clark.com’s Mike Timmerman informs consumers of a study conducted in June 2016 by ATTOM Data Solutions stating that homes in the “top ten hottest markets” sold for an average of $41,000 more than they purchased for (or a 22% increase), which in turn may cause first-time home-buyers to get priced out of such hot markets “especially in locations where jobs are plentiful.”

Complications may still arise on the selling front, however. As detailed by Trulia, there are plenty of pitfalls that may obstruct the success of the sale. These dangers “twixt the cup and the lip” include being a seller-turned-buyer (and losing that edge in the relationship if you’re still in the same market), the personal interactions between the industry personnel and consumers, as well as others. The blog also points out issues with Section 1031 of the U.S. Tax Code that “lets you sell one investment property and buy another investment property without paying tax on the sale,” pointing to the danger of not having the next property lined up for tax deference. NerdWallet encourages “window-shopping” both the house and the real estate agent, as well as being patient in the process of buying.

 

GREEN’S co-founder Steve Chaisson shares that partnering may be critical in such times. “Your goal in real estate is to make as much money as you can,” he shares with readers. “That’s not going to be possible, however, if you don’t have a tight operation. Splitting the workload here might mean having one person dedicated to searches and looking online while the other person is on the ground actually closing deals. Whatever you feel your weaknesses are, make sure that the other guy is able to cover. If you do that, stay dedicated, and keep your eyes peeled for as many opportunities as you can, then you can make money as a buyer in a seller’s market.”

 

In Summary…

Because of the favorable conditions of sellers, hot real estate markets may present a more “intense” buying atmosphere where those looking to purchase properties must be willing to cater to the needs of the party selling. The desirability of the area (as measured by any number of factors, but usually associated with fiscal prosperity and social activity in an area) means that each property will see an increase in value, which will affect the transaction of property.

Next, GREEN will offer readers expert advice on doing business in hot real estate markets from a veteran real estate professional.

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