How to Compete in a Hot Housing Market

In a hot real estate market, home inventory is low, competition is high and as a buyer, you may feel like you're on an emotional rollercoaster. Although buying a home in a strong seller’s market presents added challenges, it’s still possible to get an offer accepted on a place you’ll love.

What is a hot market in real estate?

To figure out whether a housing market is hot, experts look at how many months of unsold inventory are on the market. This measure tells you how long it would take to sell all the properties for sale if no other homes were built or put up for sale — not a scenario that would really happen, but a helpful gauge of the availability of homes to buy.

Generally speaking, an inventory level of six months is considered balanced between buyers and sellers. Less is a seller’s market; more favors buyers.

» MORE: Buying a house this year: What to expect

Why is this such a seller’s market?

A shortage of homes for sale and inadequate levels of new construction have kept much of America in a seller's market in recent years. The COVID-19 pandemic exacerbated these trends, with myriad buyers entering the market as fewer sellers were listing homes for sale and new construction was suffering from labor shutdowns and supply chain shortages. Even though homebuilders have picked up the pace since then — completing more than a million new single-family homes in 2023 — there are still more would-be buyers than available houses.

According to the National Association of Realtors, the U.S. had a 3.5-month supply of existing homes for sale in April 2024, meaning it would take 3.5 months for all those homes to sell at their current pace. (Existing homes are those that were owned and occupied before they were listed, as opposed to new construction.)

» MORE: Is it a good time to buy a house?

Tips for navigating a seller's market

1. Start with a stroll — or a scroll

Spend some time looking at what’s available before you get serious. Walk around potential new neighborhoods on the weekend and scan your favorite real estate website for new listings. Take note of how long homes are listed before a contract is pending. (In an especially hot market, it won't be long.) You might also want to look at recently sold listings online to get a sense of how much homes are really going for compared to their listing prices.

The idea is to get a sense of how hot the local market is without the pressure of feeling like you need to make an offer. You’ll also learn more about the kinds of homes and neighborhoods you like (or don’t) and which features matter to you.

But don’t fall in love with a house at first sight; doing so may lead you to overlook problems and, if you make an offer that’s declined, suffer heartache.

» MORE: Steps to buying a house

2. Find a good real estate agent

Having a good buyer's agent is particularly important in a hot market. You want someone who’ll alert you to listings as soon as they hit the market, if not before. Also, a good agent will know how to make your offer stand out.

Ask friends and colleagues for referrals to experienced agents, and interview a few. Ask the agents how they'll find listed homes in your price range and help you make competitive offers and negotiate with sellers. Learn about their communication and working styles. How often can you expect to hear from them? Will you work directly with the agent or the agent's assistants? Look for a professional with a style that meshes with yours.

Finally, don't hesitate to ask for (and actually check out) references from recent clients.

» MORE: How to find the right real estate agent for you

3. Expect to compromise

Holding out for “the one” may not be an option in a seller’s market. It may be smarter to approach home shopping by thinking about ways you could make a "good enough" home work.

Flexible expectations can give you more options in a hot real estate market. If there aren't many properties available that fit your criteria, you may need to find aspects where you can compromise.

Think about what's most important to you now, and if you see this as your potential forever home, your plans for the future. Maybe a third bedroom can be a guest room for now, and a nursery later if you're planning to have kids.

» MORE: What to prioritize when you're home shopping

4. Have your financing lined up

Compare mortgage interest rates from several lenders, and get a mortgage preapproval from two or three lenders. Official Loan Estimates will help you compare interest rates and costs to find the best deal for you.

In any market, a preapproval shows sellers that you're serious. In a hot market, your agent may have to confirm that you're preapproved in order for you to view a property in person, either because sellers are anticipating many offers or they simply want fewer strangers in their homes.

» MORE: How to get preapproved for a mortgage