How to Tell If a Neighborhood Is Hot (and What to Do When It Is)
If you’re trying to determine if your target neighborhood is hot—and if you’ll be able to recoup your investment, and then some, when you eventually sell your home—think back to basic economics.
“Really, it all depends on supply and demand,” says Neighborhoods.com agent Nicky Martz, based in central Florida. “Low inventory is an indicator that all is well and healthy in a neighborhood and often creates multiple offers, so prices go up.” When supply is low and demand is high, she says, sellers can’t help but ask for a bit more.
Signs a Neighborhood Is Hot
What are some causal factors for high demand in a particular area or neighborhood? One sign local real estate could be heating up doesn’t come from neighborhood perks or buzz—it comes from interest rates set by the federal government. If interest rates drop, Martz says, opportunities for buyers increase, which can simultaneously drop inventory and increase prices. Higher interest rates can cause a more stagnant market, she says, since buyers might be hesitant to sign on to a mortgage at a costly interest rate.
Another way to anticipate a hot real estate market in a specific area or neighborhood is to keep an eye out for announcements of business growth and development, says South Carolina-based Neighborhoods.com agent Lindsay Martin.
“Locally, we’ve welcomed large corporations like Boeing and Volvo in the past,” Martin says. “A large company opening in your market brings many transferred employees looking for homes.” Usually, they want these homes fast. Add in buzzy neighborhood features like walkability, greenspaces, and entertainment options, and you’ve got a recipe for one hot market.
A large company opening in your market brings many transferred employees looking for homes.
While you may be glued to your phone with helpful homebuying apps, it’s worth looking up from your phone: Virginia-based Neighborhoods.com agent Cathy Howell says there are also more tangible signs that a neighborhood is heating up.
“Notice if properties have for-sale signs go up in the yard and then immediately have an under-contract sign attached,” she says. “This normally means they were sold before they were even on the market.” Open houses that seem very busy or have large groups of people going through is another tip-off, Howell says.
Martz says while we already know that location is everything, it matters on a micro level and can dictate not only what’s hot but also how high prices will go. A particular location within a neighborhood, and even within a single street, can be especially hot. Houses in a cul-de-sac, corner lot, or backing up to a golf course, waterfront, or conservation lot tend to have an increased value compared with standard lots, she says.
Really, it all depends on supply and demand
Solid school districts are another factor that consistently makes a neighborhood desirable, Martin says. Even if you don’t have school-aged kids (or kids at all), Martin says she’d still recommend learning about and being comfortable with the school district associated with any particular property.
“It’ll always benefit you on the back end when you sell,” she says. Moreover, while you may not necessarily pay more for these areas, increased prices aren’t the only thing to consider. “The inventory simply doesn’t last as long,” Martin says. “If you like a home, commit before it’s gone!”
How to Navigate a Hot Local Real Estate Market
So, do all signs point to a hot local real estate market for you? What should you do to avoid homebuyer’s remorse—wait it out and look for cooling signs (more on that later), or strike quickly and pay a premium?
The short answer: It depends.
“If a buyer can wait, they should,” says Martz. As inventory creeps back up, so too does the likelihood that the seller will negotiate, she said.
If a buyer can wait, they should.
Another tip of Martz’s is to consider seasonal factors, which only applies to some areas, but it's worth noting if it’s applicable for yours. Martz says markets up north are usually hotter during the summer, when the weather is nice and people can get out and see homes. A buyer could try waiting until the depths of winter to start your search.
Down south, the intense heat of summer can make it a less appealing time of the year to buy—but a buyer willing to break a sweat might benefit by searching in the summer months. However, remember that summer is also a popular time for families to buy so they can move in during an off-time and get kids set up in a new home before the school year starts.
“There is no crystal ball when it comes to real estate, so you have to look at other motivating factors,” says Martin. Is your family growing requiring you to have more space? Are interest rates low? Is this simply the exact neighborhood and home you want to be in? “If there are more reasons to make a move than not to, take the plunge,” Martin says. “You’re probably planning to be in your new home for many years to come, so that’s even more reason not to wait.”
If there are more reasons to make a move than not to, take the plunge.
Howell notes that working with an experienced real estate agent can really pay off if a local market is hot. “I know my markets well enough that if my clients are not in a hurry, we can sometimes time a purchase—especially if it’s new construction—with a time when the market is slow. We can also coordinate the listing and sale of their own home, if applicable, during the potentially hottest time of the market,” she says.
Signs a Neighborhood Is Cooling Down
If you’re not a totally motivated buyer and have time to wait, you can look for signs a neighborhood is cooling off and potentially get a great deal. Increased inventory is one surefire sign, says Martz—it has the twofold benefit of lower prices coupled with a wider selection for buyers. In addition, Howell says to look at how many days properties have been on the market and if they’re selling for below listing price.
Martin suggests keeping an eye out for a rise in taxes and other real estate-related fees as well as if jobs are moving out of the area. However, she’s firm in her approach with most clients: Buy when your individual need is there.
According to Martin:
“Waiting for the stars to align is unrealisticReal estate is a long-term investment for most people. Invest in your ‘now,’ and you’ll likely be making a good long-term investment that you’ll have equity in when it’s time to sell."