This housing market glossary is organized to provide a clear, contextual understanding of housing market concepts.
Housing Market: The system of supply and demand for houses and other residential properties in a specific area or in a country as a whole.
Buyer's Market: A market condition where the supply of homes for sale (inventory) exceeds the demand from buyers. This gives buyers more negotiating power, and prices may stagnate or fall.
Seller's Market: A market condition where demand from buyers exceeds the supply of homes for sale. This leads to competition, bidding wars, and rising property prices, giving sellers the advantage.
Supply and Demand: The core economic principle of the market. Supply refers to the number of properties available for sale. Demand refers to the number of buyers looking to purchase properties.
Housing Affordability Index: A measure of whether a typical family earning the median income can qualify for a mortgage on a typical home. An index of 100 means the median-income family has exactly enough income to qualify.
Equity: The financial stake a homeowner has in their property. It's the difference between the home's current fair market value and the outstanding balance of all liens (like a mortgage) on it.
Appreciation: The increase in a property's value over time.
Depreciation: The decrease in a property's value over time, often due to wear and tear or unfavorable market conditions.
Real Property: The land and any permanent structures attached to it, such as a house, as well as the rights (like mineral rights) associated with that land.
Personal Property: Movable items not permanently affixed to the real property (e.g., furniture, curtains, refrigerators). These are typically not included in a home sale unless specified.
Real Estate Agent: A licensed professional who represents buyers or sellers in real estate transactions.
Realtor®: A real estate agent who is an active member of the National Association of Realtors (NAR) and is bound by its strict Code of Ethics. Not all agents are Realtors®.
Broker (Real Estate): A professional with a higher-level license than an agent. Agents must work under a licensed broker, who is legally responsible for their transactions.
Listing Agent (Seller's Agent): The agent who represents the property seller. Their primary duty is to get the best price and terms for the seller.
Buyer's Agent: The agent who represents the property buyer. Their primary duty is to help the buyer find a property and negotiate the best price and terms.
Dual Agency: A situation where a single real estate agent or brokerage represents both the seller and the buyer in the same transaction. This creates a potential conflict of interest and is illegal in some states.
Lender (Mortgagee): The bank, credit union, or financial institution that provides the loan (mortgage) to the buyer.
Borrower (Mortgagor): The person who takes out the loan to buy the property.
Mortgage Broker: An intermediary who does not lend money but connects borrowers with potential lenders, shopping for the best loan terms on behalf of the borrower.
Underwriter: The professional who works for the lender to assess the risk of a loan. They verify the borrower's income, assets, debt, and credit history to approve or deny the loan.
Appraiser: A licensed professional who provides an independent, impartial estimate of a property's value, known as an appraisal. Lenders require this to ensure the property is worth the loan amount.
Home Inspector: A professional hired by the buyer to conduct a thorough visual inspection of the property's condition (e.g., roof, foundation, plumbing, electrical) to identify any potential issues.
Single-Family Home (SFH): A detached, standalone house built on its own lot, intended for use by one family.
Multi-Family Home: A building designed to house more than one family in separate units (e.g., a duplex, triplex, or fourplex).
Condominium (Condo): A form of ownership where an individual owns the airspace inside their specific unit, while all owners share joint ownership of the common areas (e.g., hallways, pool, land) managed by a Homeowners' Association (HOA).
Cooperative (Co-op): A form of ownership where a corporation owns the entire building. Instead of buying real property, individuals buy shares in the corporation, which entitles them to a proprietary lease for a specific unit.
Townhouse: An attached home, often with multiple floors, where the owner owns both the unit and the land it sits on. May also be part of an HOA that maintains shared grounds.
Foreclosure: A legal process where a lender seizes and sells a property because the borrower failed to make their mortgage payments.
Real Estate Owned (REO): A property that has gone through foreclosure but did not sell at auction and is now owned by the lender (the bank).
Short Sale: A sale of a property for less than the amount still owed on the mortgage. The seller must have the lender's approval for the sale, as the lender is agreeing to accept a "short" payoff.
Listing: A property for sale. A "listing agreement" is the contract between the seller and their real estate broker.
Multiple Listing Service (MLS): A private database used by real estate professionals to share listings and information, and to cooperate with other brokers.
Offer: A formal proposal from a buyer to a seller to purchase a property at a specific price and with specific terms.
Counteroffer: A response from the seller to a buyer's offer, changing some of the terms (like price or closing date). This rejects the original offer.
Acceptance: When the seller and buyer agree to all terms, in writing, creating a legally binding purchase agreement.
Purchase Agreement (Sales Contract): The final, binding legal document that outlines all the terms, conditions, and details of the home sale.
Contingency: A clause in a purchase agreement that must be met for the sale to proceed. If the contingency is not met, the buyer can often back out of the contract without losing their deposit. Common contingencies include:
Financing Contingency: The sale is dependent on the buyer successfully securing a mortgage.
Inspection Contingency: The sale is dependent on a satisfactory home inspection report.
Appraisal Contingency: The sale is dependent on the property appraising for at least the purchase price.
Earnest Money Deposit (EMD): A "good faith" deposit made by the buyer to the seller when signing the purchase agreement. It is held by a neutral third party and applied to the down payment at closing.
Escrow: A neutral third-party company or agent that holds all funds, documents, and instructions related to the transaction. They ensure all conditions of the sale are met before any money or property changes hands.
Closing (Settlement): The final step in the transaction where the property ownership is officially transferred from the seller to the buyer. The buyer signs the loan documents, the seller signs the deed, and all funds are distributed.
Closing Costs: Fees paid at closing to finalize the transaction. These are separate from the down payment and typically include loan origination fees, appraisal fees, title insurance, attorney fees, and pre-paid property taxes. They usually total 2-5% of the home's purchase price.
Closing Disclosure (CD): A 5-page form a lender must provide to the borrower at least three business days before closing. It details all the final, exact terms and costs of the mortgage.
Mortgage: A loan from a financial institution used to purchase real estate. The property itself serves as collateral for the loan.
Principal: The original amount of money borrowed for the loan.
Interest: The fee charged by the lender for borrowing the money, usually expressed as an annual percentage.
PITI: An acronym for the four components of a typical monthly mortgage payment: Principal, Interest, Taxes (property taxes), and Insurance (homeowners' insurance).
Escrow Account (Impound Account): An account set up by the lender to hold the borrower's funds for property taxes and homeowners' insurance. The lender pays these bills on the borrower's behalf when they are due.
Amortization: The process of paying off a loan over time through scheduled, fixed payments. An "amortization schedule" shows how much of each payment goes toward principal versus interest.
Down Payment: The initial, upfront portion of the purchase price that the buyer pays in cash, rather than financing.
Loan-to-Value (LTV) Ratio: A comparison of the loan amount to the appraised value of the property. If you buy a $100,000 home with a $20,000 down payment, your loan is $80,000, and your LTV is 80%.
Private Mortgage Insurance (PMI): Insurance required by lenders for conventional loans when the borrower's down payment is less than 20% (LTV is >80%). It protects the lender (not the borrower) in case the borrower defaults.
Debt-to-Income (DTI) Ratio: A percentage that compares a borrower's total monthly debt payments (including the new PITI) to their gross (pre-tax) monthly income. Lenders use this to determine a borrower's ability to repay a loan.
Interest Rate: The cost of borrowing money, expressed as a percentage of the loan.
Annual Percentage Rate (APR): The true cost of a loan, expressed as an annual percentage. It includes the interest rate plus other loan fees and costs (like origination fees), making it a more accurate comparison tool than the interest rate alone.
Fixed-Rate Mortgage (FRM): A mortgage where the interest rate remains the same for the entire life of the loan (e.g., 15 or 30 years).
Adjustable-Rate Mortgage (ARM): A mortgage where the interest rate is fixed for an initial period (e.g., 5 or 7 years) and then periodically adjusts based on a specific market index.
Pre-Qualification: An informal, preliminary estimate from a lender of how much a borrower might be able to borrow, based on self-reported financial information.
Pre-Approval: A much stronger commitment from a lender to lend a specific amount. It requires the borrower to submit formal documentation (pay stubs, tax returns, bank statements) for verification by an underwriter.
Conventional Loan: A mortgage not insured or guaranteed by the federal government.
FHA Loan: A mortgage insured by the Federal Housing Administration (FHA). Often popular with first-time homebuyers due to its lower down payment requirements.
VA Loan: A mortgage guaranteed by the U.S. Department of Veterans Affairs (VA) for eligible veterans and active-duty service members. Often requires no down payment.
Jumbo Loan: A loan that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). These are for more expensive properties and typically have stricter underwriting requirements.
Points (Discount Points): Fees paid directly to the lender at closing in exchange for a lower interest rate. One point equals 1% of the loan amount.
Title: The legal concept of ownership. A "title" is a bundle of rights to a property, not a single document.
Deed: The physical, legal document that transfers title (ownership) from the seller (grantor) to the buyer (grantee).
Title Search: A thorough examination of public records to confirm a property's legal owner and check for any claims or issues with the title.
Clear Title: A title that is free of any liens, encumbrances, or disputes that would cast doubt on the owner's legal claim.
Cloud on Title: Any issue, claim, or encumbrance (like an unpaid tax bill or a contractor's lien) that makes the title "cloudy" or questionable, and must be resolved before the property can be sold.
Lien: A legal claim against a property for an unpaid debt. A mortgage is a type of lien. Other examples include tax liens or a mechanic's lien (from an unpaid contractor).
Encumbrance: A broad term for any claim or right against a property that limits its use or value, such as a lien, an easement, or deed restrictions.
Easement: A legal right for someone else to use a portion of your property for a specific purpose (e.g., a utility company's right to access power lines).
Title Insurance: An insurance policy that protects the new owner (Owner's Policy) and the lender (Lender's Policy) from financial loss due to defects in the title that were not discovered during the title search.
Fee Simple: The most complete and absolute form of property ownership, giving the owner the right to use, sell, or bequeath the property.
Joint Tenancy: A form of co-ownership where two or more people own a property with "right of survivorship." If one owner dies, their share automatically passes to the surviving co-owner(s), bypassing probate.
Tenancy in Common: A form of co-ownership where two or more people hold separate shares in a property. These shares can be unequal, and there is no right of survivorship. When an owner dies, their share passes to their heirs or beneficiaries as specified in their will.
Appraisal: A licensed appraiser's professional opinion of a property's "fair market value."
Fair Market Value (FMV): The most probable price a property would sell for in an open and competitive market, assuming both buyer and seller are knowledgeable, willing, and not under pressure to act.
Assessed Value: The value placed on a property by a public tax assessor for the sole purpose of calculating property taxes. This value is often different from the market value.
Comparable Sales (Comps): Recently sold properties with similar characteristics (size, location, condition, age) that are used by appraisers and agents to determine the value of a subject property.
Sales Comparison Approach: The most common method for appraising residential properties, which involves comparing the subject property to "comps."
Cost Approach: A valuation method that determines value by calculating the cost to rebuild the property from scratch, minus depreciation, plus the value of the land.
Income Approach: A valuation method used for investment and rental properties, which determines value based on the property's potential to generate income.
Housing Starts: The number of new residential construction projects that have begun during a specific month. It's a key indicator of future supply and economic health.
Building Permits: The number of authorizations granted by local governments to begin construction on new projects. This is a leading indicator, as it signals future housing starts.
Existing Home Sales: A measure of sales of previously owned homes. This makes up the vast majority of the housing market.
New Home Sales: A measure of sales of newly constructed homes.
S&P CoreLogic Case-Shiller Home Price Index: A leading measure of U.S. residential real estate prices, tracking changes in the value of single-family homes in 20 major metropolitan regions.
Interest Rates (Mortgage): The rates charged by lenders for home loans. These are heavily influenced by the Federal Reserve's policies and the bond market. Rising rates decrease buyer purchasing power, while falling rates increase it.