Hot, Cold, and Neutral: The Three Temperatures of Real Estate

If you're buying, selling, or otherwise generally interested in Calgary real estate, you've no doubt heard that Calgary's market is "hot, hot, hot". But what does tha...

Hot, Cold, and Neutral: The Three Temperatures of Real Estate Close
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Hot, Cold, and Neutral: The Three Temperatures of Real Estate

Posted by Krista Kehoe on Wednesday, March 13th, 2013 at 2:51pm.

If you're buying, selling, or otherwise generally interested in Calgary real estate, you've no doubt heard that Calgary's market is "hot, hot, hot". But what does that really mean? Let us help you walk through these terms, so you're not thinking of Goldilocks' porridge every time you hear them!

Hot Real Estate MarketYou can also describe a hot market as a seller's market. Lots of buyers are out looking for a home, but there are not very many on the market. This allows sellers to drive up prices, and forces buyers to spend more than they bargain for. This is the prime climate for bidding wars, which often happen when more than one buyer is seriously interested in a property. This drives the final purchase price above the listed price and can also give a seller particularly favourable closing terms.

A "cold" market is one in which the market is flooded with inventory. Another way to look at it is that there are too few buyers for the number of listings on the market. It could be argued that this is a hot market for buyers, given the great deals they can find. The scarcity of willing buyers means that many sellers are willing to provide cash move-in incentives, severely lowered prices, interior design/landscaping packages, and many other concessions to close a sale.

So, hot and cold markets are easy to identify, but what about a relatively equal market? Signs of a neutral market include: relatively similar numbers of sellers to buyers, sale prices that are close to closing prices, and listings are on the market for about a month-a month and a half. In a neutral market, there are also about three to six months of inventory available.

What does that mean, exactly? Well, you can calculate how many months of inventory are on the market by doing some simple math. This will also help to determine whether you're in a buyer/seller's market. Find the total number of sold/closed listings in the last month and the total number of active listings over the last month. Divide total listings by total sales and you'll find the number of remaining months of inventory. For example, if there were 25 sold/closed listings in the last month and 100 active listings, that means there are four months of inventory on the market.

To recap, knowing the difference between a hot/cold/neutral market will help you decide what move you should think about making next with your real estate investments. You'll also impress your team of real estate professionals. Plus, you'll be a hit at any cocktail party you go to if you can whip out the formula for calculating how many months of inventory are currently on the market at a moment's notice. Ok, maybe not, but it's still good to know!

Krista Kehoe, Calgary real estate agent & REALTORĀ®

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