Using The Market Heat Index®
As a Seller:
If the Market Heat Index® Is High (1.25 or above):
You
may expect a high degree of competition among buyers for your house, perhaps
even multiple offers--if your home has a good location and is in good condition.
The higher the MHI reading, the greater the likelihood of an intensely competitive
market response to your property. These Market Heat Index® readings reflect
market conditions which are most likely to produce a great price for your home.
If the MHI Is Balanced (Between 0.80 and 1.25):
You and the
potential buyers of your home are on relatively equal footing when in this type
of market. The market is neither "hot" nor "cold." You should find a buyer within
a reasonable amount of time, but probably only one buyer at a time. Since there
will most likely not be an intense level of competition for your home, a fairly
priced listing and a well-prepared home are key to a good outcome for you as
a seller.
If The MHI is Low (Below 0.80):
Your home will likely take longer to sell. You may need to set your asking price
at a lower level than you wish in order to produce a willing buyer; you may
find it necessary to make concessions on terms in order to close a sale. You
almost certainly will need to cultivate a patient attitude, since the lower
Market Heat Index® reading, the longer you may need to market your property.
These situations require different strategies for effectively pricing, preparing
and marketing your home. Talk to your Realtor and strategize about taking advantage
of your Market Heat Index® information. It will help you achieve a more profitable
sale of your home.
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As a Buyer:
If the MHI Is High (1.25 or above):
Expect any offer you make to have competing offers from other buyers, especially
on homes you really like (in this type of market, if you like it, others usually
do too!). If the MHI number is really high, the level of competition you will
face may seem a bit crazy, especially as the number of competing bidders rises.
Don't let that intimidate you. Using the information from the Market Heat
Index can help give you a competitive edge, especially in a market such as this.
Still, you may need to make offers on several homes before you finally win out
for a home you like. You may also need to consider raising your price ceiling,
or conceding on some terms in order to get the home you want.
The MHI is Balanced (Between 0.80 and 1.25):
There is about as much demand by buyers as there is supply by sellers, so it's
neither a great market for you, nor a poor one. This is a market with a level
playing field. It is, all things considered, a very reasonable time for you as
a buyer to find a good home at a fair price, since the inventory is at decent
levels (giving you reasonable choices) and the competition by other buyers is
moderate.
The MHI is low (Below 0.80):
There are lots of homes available. You can usually take more time making your
home selection, you can bargain more strongly on the purchase price, and you can
usually get good terms from the seller. This is the kind of market in which you
are most likely to find a bargain. Just remember, a bargain isn't a "steal,"
and sometimes instead of accepting a very low offer the seller decides to make
a big reduction in asking price to attract other buyers. This can cause multiple
offers to happen, even in markets with low MHI readings (very "cool"
markets). So remember to bargain judiciously if you really wish to buy a particular
home.
Each of these situations requires a different strategy for crafting an offer
likely to be accepted. Talk to your Realtor about the best way to apply this Market
HEAT Index® information to your own situation. Remember, using the MHI information
better prepares you to deal with the actual market conditions prevailing. And,
it will help you acquire the home you want at the best possible price.
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What if
I'm NOT a Buyer or Seller?
If you own a home but are not planning on buying or selling in the near future,
it's still worth keeping track of the Index. After all, for most people
their home is their largest, most important asset. It just makes sense to know
the competitive landscape in your own area and price range.
If you don't own a home, you may find that following the MHI will help you
discover when it would be most advantageous to jump into the housing market. First-time
buyers can make much better decisions with more current and more accurate information.
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What's a "hot" or "cold" market?
A "hot" market is one where there is intense competition among buyers
for the homes that are on the market—i.e., when the MHI is high, usually
1.25 and above.
A "balanced" market is one where there are about as many real buyers
as there are listed homes—i.e., when the MHI is around 1.00 (.80 to 1.25).
A "cold" market is one where there is not much buyer competition for
homes, and there is a larger inventory of available homes for sale—i.e.,
when the MHI is low, 0.80 and below.
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Is the MHI reading for towns comparable to any other market area? Is the price
level Index reading comparable to those in other market areas?
This is a great and very important question. The answer is both "yes"
and "no." Think of the weather. Imagine 65 degrees outdoors at noon
in mid-summer in Phoenix, Arizona. Now think of 65 degrees at noon at Fargo, North
Dakota in mid-winter. One is pretty cold for the normal weather; the other is
alarmingly warm—even though they are both 65 degrees.
So when comparing areas, you will need to take into account the previous behavior
of the Index for that town or price range. Take a look at the highest and lowest
Index readings for that category. If you note where the current reading is in
relation to the highest and lowest readings, you can get a sense of how regular
or irregular that current reading is.
For example, if over a fairly long time, the MHI for Tiburon has been between
0.20 and 0.85 and it suddenly goes up to 1.25, that's indicating a VERY
warm market FOR TIBURON—in fact, a new record High reading.
On the other hand, if Greenbrae has been showing an MHI between 2.00 and 8.00
for quite awhile, and it drops down to 1.25, that's an indication of a pretty
cool market FOR GREENBRAE. So the MHI number for both is 1.25, but reflects different
market realities.
However, keep in mind too that in the above example an area (like Tiburon) that
historically shows a very low MHI (0.20—0.80) typically does have a "cooler"
market, which is much better competitively for buyers. And a market (like Greenbrae)
that shows a higher MHI (2.00—8.00) is generally "warmer" and
is an easier market in which to sell.
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