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Zillow’s Market Heat Index Methodology
What’s the metric?
Zillow’s market heat index is a time series that aims to capture the balance of for-sale supply and demand in a given market. It relies on the listing-based metric inputs: (1) user engagement on Zillow’s active home listings, (2) the share of listings with a price cut, and (3) the share of for-sale listings going pending in 21 days.
How to interpret the data
The metric assumes an index value typically ranging from 0-100. A higher value indicates the market is more tilted in favor of sellers.
We consider:
- A score of 70 or above to be a “strong sellers market.”
- A score from 55 to 69 to be a “sellers market.”
- A score from 44 to 55 to be a “neutral market.”
- A score from 28 to 44 to be a “buyers market.”
- A score of 27 or below to be a “strong buyers market.”
While the range of these numbers is somewhat arbitrary, the relation of these indexes gives us information about how a given market compares to others, or to itself in the past, in terms of “temperature.” For example, we can make the following comparisons with the current metric:
- Region A has a higher temperature than region B, so region A has more buyer competition than B and market balance is therefore tilted more in favor of sellers.
- Region A is up 10% month over month, indicating the competition in the region is increasing. This suggests there are more potential buyers per available listing than the previous month.
- Region A is down 5% year over year, indicating that compared to last year it is slightly easier to buy a home.
More information on the metric’s three inputs
- User engagement on Zillow’s active home listings: A leading indicator of housing demand. When the value is low, there are fewer buyers indicating they are interested in available homes. If the value is high, it suggests a high level of interest and competition amongst potential buyers for each home listing.
- Share of for-sale listings with a price cut: A high percentage means sellers are frequently reducing their prices, suggesting a cooling/cool/cold market. Conversely, a low percentage signifies that sellers can maintain or even increase their asking prices, indicating a warm/hot market.
- Share of for-sale listings going pending within 21 days: A measure of market speed. A high value demonstrates a fast-moving market where homes are selling rapidly (hot), while a low value indicates a slow-moving market (cold), with homes taking longer to sell.