I have discussed below the various ways to assess a real estate market, from absorption rates to supply/demand ratios.  Now I'd like to propose a method which offers a more practical method of market analysis. 

Because the pricing of a property is the single most important factor in its sale, it is crucial for a listing agent to know just what the current state of the real estate market for that property is.  In other words, is the demand for the property (in terms of prices) high or low?  Or somewhere in between? By slicing and dicing the price ranges in a market, whether based on a town, a county or a state, we can determine just how hot a market is.

I break down an areas real estate market into price ranges of $50,000, up to one million, then $100,000 segments above that mark.  In each price range I total the number of current active listings (regardless of number of bedrooms, style, etc.) and the number of pending listings as well.  If there are as many actives as pendings in a given price range, the market could be said to be in balance.  If there are more pendings than actives, the market favors the seller, and if there are more actives than pendings, the market is favoring the buyer.

By focusing on segments of the market it is easier to see where the most activity is.  Conventionally, the largest segments are at the entry or first-time buyer levels, but that is not always true.  This method also reveals more about a market than other approaches.  If youre a seller of a $500,000 home, and the hot market is under $200,000, other methods might suggest a hot sellers market, when in fact your property could be sitting in a market dead zone, where there are far more actives than pendings.  Knowing that upfront can be helpful in determining list price and making certain that marketing time is reduced to a minimum.

Slicing and dicing real estate pricing is the sellers' friend.