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Hot or Cold Market - Why does it Matter?

Updated: Jan 19

How can you tell if a market is hot or cold and what does that mean for you, as a buyer and/or as a seller?

For Sale sign with Sold Over Asking placard above it.

Here's the deal: when it comes to buying or selling a home, most people tend to only think about getting the perfect home, but what is also needed to be considered is if this is a good time to buy or not. You may want that "perfect home" but at what cost? Are you willing to pay all closing costs, have a high interest rate, or is it more important to you that you get the home you want without the hassle of selling at a bad time? Because, when it's a good market to buy, it's usually not a great market to sell. So the question remains: what are you willing to lose to get your dream home?


Take a look at this graphic to see the breakdown of a hot market vs neutral market vs cold market. When looking at this graphic, think about your home as not just your perfect place to live, but an investment into your future. What makes the most sense for you/your family? Only you can answer this question for yourself.

Basic breakdown of hot, neutral, and cold markets.

HOT MARKET

This is a seller's market. If a market is selling houses quickly and at or over asking price, you will see many mortgage companies and RE agents referring to the market as being "hot".


When there are more buyers than homes for sale, the competition rises between buyers resulting in faster and higher offers. This is considered a hot market.


Sometimes in this market, buyers want to cut corners such as waiving inspections or skip part of the process to be a more appealing buyer to the seller. Be wary of doing this. By waiving an inspection, you could get in a lot of issues with the home without any legal ramifications from the seller (i.e. foundation issues either unknown or purposefully left out by the seller that an inspection could have caught before the sale went through).


So, why does this matter to you? How could a hot market affect you? A hot market is great for seller's as mentioned above. As the seller, you can probably expect to see offers coming in on your home that are over listing price. When one of our employees sold their home in a hot market, they got 6 offers in the first day of listing it, all for $10,000 or more over asking price (please note this was one instance and is not guaranteed in a hot market). This was great for our employee and could be great for you! Not to mention, interest rates in this type of market tend to be lower than average. However when someone sells their home, they are typically then also a buyer of another home and, as the buyer, you can expect high competition between you and other buyers as well as very little time to make a decision on whether you want to make an offer or not as the homes tend to go into pending quickly.


NEUTRAL MARKET

This is neither a seller's nor a buyer's market. Houses typically will sell within 30-50 days. In this type of market, no one really has the upper hand. Negotiations on selling terms and conditions are not generally affected in this type of market.


In this market, there are about the same number of buyers and sellers with no one having the clear advantage. This might be the type of market that some people feel is their ideal market. Their house will probably sell for what comparable homes in the area are selling for and they will likely have to pay a comparable price for the home they are looking to buy. The seller can expect to sell their home within 30-50 days and they can expect the same when buying a home. It's a less volatile market than a hot market with average competition.


So, why does this matter to you? How could a neutral market affect you? In a neutral market, the biggest affect you're going to see is less negotiation power as the seller than in a hot market and less options as a buyer than if it were cold market. A neutral market is also more known for average interest rates since neither demand nor supply are in excess (though interest rates are never guaranteed in any type of market).


COLD MARKET

This is a buyer's market. If houses are sitting on the market for 50+ days consistently and not going for asking price, you will see many people referring to the market as being "cold".


When there are more homes for sale than there are buyers, this is considered a cold market. They essentially have the pick of the litter, so to speak. Buyers are able to make negotiations and can typically get a seller to make a few fixes before they sell the home (though this is not a guarantee at all).


So, why does this matter to you? How could a cold market affect you? A cold market is where it's at for buyer's. In a cold market, you have plenty of homes to choose from and you have time to make a decision. With hot markets, as a buyer, you have to move quickly before the home you want gets snatched up. In a cold market, you have time to assess your options and look at multiple homes before putting in an offer on a home. In this type of market though, interest rates tend to be higher on loans and it could take a while for you to sell your current home before being able to purchase another home.


THE TAKE AWAY

Every type of market has its pros and cons. Just because a market is hot doesn't mean it's the best time for you and your family to get into the buying and selling game and vice versa. With the knowledge you now have from this article, our hope is that you are now armed with enough information to know what is best for you and your family. Got questions? Contact one of our loan officers today!


*All info is from market research and data analysis done by Essex Mortgage. We cannot guarantee any type of loan in any type of market. Interest rates are always subject to change.

 

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