A housing market is not one quantity. It is a stock of houses that exist, a flow of houses offered and taken up, and a queue of people waiting on either side of the exchange. Almost every argument about whether a market is hot or cold is really an argument about which of the three someone is looking at.
Stock, flow and queue
The stock is every dwelling in the valley, occupied or not. It changes slowly: new construction and demolition together alter it by a small fraction each year, so over any short period the stock is effectively fixed. The flow is the subset of that stock offered for sale in a given month together with the subset that finds a buyer. The queue is the population of households looking to move, which is invisible in the record and has to be inferred.
Because the stock is fixed in the short run, a change in demand cannot be met by more houses. It is met by a change in price and a change in how quickly the flow clears. That is the whole mechanism, and everything below is a way of measuring it.
Absorption and months of inventory
Absorption is the rate at which offered houses are taken up. Divide the number of unsold listings by the number of sales in a typical month and the result is months of inventory: how long the current shelf would last at the current rate of clearing, assuming nothing new arrives.
It is the single most useful local figure because it combines both sides of the exchange in one number. A short figure means the shelf empties faster than it fills, which puts sellers in the stronger position. A long figure means the reverse. The thresholds people quote for what counts as short or long vary by place and by era, which is why the direction of travel matters more than the level.
Days on market, and what it hides
Days on market counts the interval between listing and going under contract, averaged across the houses that transacted. The trap is in that last clause. The figure describes the successful population only. Houses that were withdrawn, relisted at a new price or simply never sold leave the average, and in a weak period they leave it in large numbers, which can pull the reported figure down at exactly the moment conditions worsen.
Read with the count of active listings and with the share of listings that reduced their price, it becomes a reliable temperature reading. Read alone it flatters whichever case the reader arrived with.
Asking, contract and achieved
Three different prices are attached to the same house at three different moments. The asking price is a hypothesis published by the seller. The contract price is what a specific buyer agreed. The achieved price is what actually settled, after any renegotiation following inspection or appraisal.
The spread between asking and achieved is a better description of bargaining power than either number, and the share of houses that closed above, at or below their asking price is more informative still. When most transactions close at or near the asking price, sellers are pricing into a queue. When most close below it, buyers are.
Seasonality
Housing has a seasonal rhythm almost everywhere, driven by school calendars, employment start dates and the simple fact that people prefer to move in tolerable weather. In a desert valley the summer constraint is unusually strong at the viewing end and unusually weak at the moving end, since air conditioning has made the calendar less binding than it once was.
The practical consequence is that any month-on-month comparison is close to meaningless without a seasonal correction, and that the same-month-last-year comparison, though crude, is often the honest one.
Why one valley is not one market
A metropolitan housing market is a convenient fiction. The mechanics above operate at the level of a submarket: a band of price, a building era, a school catchment, a street geometry, a distance to employment. Two neighbourhoods a few miles apart can run opposite absorption rates for a year because they serve different queues.
Aggregate figures are still worth reading, in the same way that a national average temperature is worth reading. They just never describe the room anyone is standing in.