Buyer’s Market or Seller’s Market?
It’s All About Supply & Demand
Below are some basics to help you determine… Buyer’s Market or Seller’s Market? Where is your market now? Where is it headed? What if you’re in between?
A Buyer’s Market
Indicators of a Buyer’s Market include:
- Demand is Lower
- Inventory is Higher
- Longer List Time/High Number of Days on Market (DOM)
- Fewer Offers
- Lower Offers
- Price Reductions
A Buyer’s Market is often associated with a slowing economy and also with job loss. As employees leave the area to find work or as investors or vacationers become more conservative with their discretionary spending, buyers leave the market. Some owners also want to leave the market becoming sellers. Both of these factors add to the increase in available inventory. In an unstable economy, there are little to no contractors beginning new projects and some builders are even left holding the note on existing new construction.
As prices begin to fall in response to supply and demand, many homeowners find themselves “upside down” in their properties, meaning the market value has fallen below what they currently still owe on the home. If a seller needs (or wants) to sell in this type of scenario, perhaps in order to leave the market in hopes of more job opportunity elsewhere, they may find themselves having to bring money to the table in order to close. Worse yet, some sellers may be in short sale or foreclosure situations. An increase in number of distressed properties being offered for sale is another indicator of a Buyer’s Market.
Often, when the market is working in the buyers’ favor, sellers will continue to offer incentives like price reductions, seller financing, or even offering to cover a portion of the buyers’ closing costs in order to get an offer and make it to the closing table. Buyer’s Markets are also identified by a number of first time homebuyers entering the market, as the decline in price often provides an opportunity for new buyers to get into the market who have previously not been considered part of the pool of potential homeowners.
A Seller’s Market
Indicators of a Seller’s Market include:
- Demand is Higher
- Inventory is Lower
- Shorter List Time/Low Number of Days on Market (DOM)
- Multiple Offers
- Homes Selling Above List Price
A Seller’s Market is often associated with a booming local economy. As people migrate to an area for work or pleasure, the demand for housing increases. The increased demand creates a lack of supply, so low existing housing inventory is a common characteristic of this type of market. Builders are building but not able to produce enough. Sales prices escalate as a result.
Since sellers have the “upper hand” in transactions, you are less likely to see seller concessions or offers for seller financing. Sellers also don’t seem to be in a rush to sell, as their impression is, if they wait, their property will be worth more in the future than it is ow. Sellers can also afford to be more “choosey,” which results in higher down payments and very few contingencies coming in from qualified buyers. Other characteristics of a Seller’s Market include a higher number of closed transactions occurring, recent comparable sales prices are lower thank current active listing prices, and a short number of days on the market, often involving very quick sales and/or multiple offers.
A Neutral Market
Of course, we know there are Buyer’s Market and Seller’s Markets… but when does it change? The answer is… it takes time. Real Estate markets don’t change overnight and often times the switch from one type of market to another are only seen in hindsight. So what’s the deal with that “in between” period?
Indicators of a Neutral Market include:
- Inventory level is comparable to inventory levels of recent months
- Recent comparable sales prices are similar to active listing prices
- Median sales prices have flattened
- Number of sales have stabilized
Want help identifying trends in your area of the market? Have questions about your timing as a buyer or seller? Please call or email me anytime! I’m happy to discuss with you the current market conditions, your best options as a buyer or seller, and how your personal goals and scenario may fit within the bigger, market-wide picture – whether Buyer’s Market or Seller’s Market!