The terms “seller’s market” and “buyer’s market” are terms thrown around when people talk about the conditions of the housing market.
You might have heard these terms and wondered what they mean, and how they relate to your real estate goals. This article will cover that.
Let’s start with the most basic definitions.
A buyer’s market in real estate has conditions that favor home buyers. In this market, you commonly will find a large amount of inventory (homes for sale), prices are stable or going down, homes staying on the market longers and favorable contract terms for the buyer.
A seller’s market in real estate has conditions that favors sellers. This market you will commonly find low inventory (homes for sale), rising prices, homes selling quickly with multiple offers and favorable contract terms for the seller.
We will next get into how these markets happen, and some tips for navigating each type if you are buying or selling.
Local & Larger Factors
The value of a piece of real estate can be affected by local, national and even global factors.
The condition of the economy overall affects the housing market as well. How affected it is depends on exactly what is going on in the world.
Real estate is also very affected by local conditions.
For example, let’s say the economy is slow and most areas prices are dropping. However, it is announced that a large corporation is moving to a certain area, bringing jobs and new construction. The neighborhoods in that area are likely to get a boost, because the demand will increase to live near those jobs and amenities.
When considering what kind of market you are in, you have to consider the overall market and the hyperlocal market.
What Can Cause a Buyer’s Market?
Some of these could be “signs” of a buyer’s real estate market, others could be “causes”. There is often overlap.
- Economic recession or slowdown.
- High interest rates.
- Decreased demand for homes.
- Increase in number of homes for sale.
- Local factor slowing demand for a neighborhood or area.
• Buying a Home in a Buyer’s Market
In a buyer’s market, it will be easier to find an updated home and get an offer accepted for a price that is generally at or below recent comparable sales.
On average you will have more leverage to negotiate repairs, sales price, closing cost credits, etc.
A buyer’s market is also a good time to be a real estate investor.
There is a chance that the interest rates will not be near their lows, so if you have cash for a large down payment or to pay outright for a property you may have even more leverage.
• Selling a Property in a Buyer’s Market
If you are listing a home in a buyer’s market, it is highly likely you will be competing with other homes nearby.
In this situation, you want to pay very close attention to the comparable sales in your area. Listing your property near the bottom of these sales can help you attract attention and get an offer.
The updates and condition of your home also will matter. In a buyer’s market, you want your property to stand out and give the potential buyers what they want: an updated low maintenance home.
Home Values in A Buyer’s Market
In a market where there is more supply than demand, the general trend is for prices to go down. This can be seen as a slight “softening” (stable prices but trending downward) or an obvious more quick decline if there are extreme factors affecting the market.
What Can Cause a Seller’s Market?
Just like a buyer’s market, some of these are “signs” and some “causes”. There can be overlap depending on what is happening.
- Economic growth or economic stimulus.
- Low interest rates.
- Increased demand for homes.
- Low number of homes for sale.
- Local factors increasing demand for a neighborhood or area.
Buying a Home in a Seller’s Market
When you are buying in a seller’s real estate market, you will be competing. You will want to get used to bidding against multiple offers.
The contract you write will be favored to the seller, possibly waiving contingencies. You also may need to lower your expectations of how updated your home will be and be willing to make updates later.
If the seller’s market is being stoked by low interest rates, then the silver lining is that your mortgage payment will go more toward paying down the principal of the loan and less toward interest.
And you have an opportunity to lock in a low rate for the long term.
Selling a Property in a Seller’s Market
Being a seller in this type of market means you will net more money for your home. You can most likely list at the top of the comps being sold and also possibly get more if the property gets multiple offers.
Because there are less homes for sale, you do not have to upgrade your home extensively to find buyers and get a good price. If you do upgrade, you can expect even more demand.
Bidding wars are common, and the contracts tend to have fewer and shorter contingencies.
How is the Market Now?
Are you about to become a part of the real estate market by buying or selling a home?
Then you are wondering what the market conditions are. For the fastest answer reach out to a local real estate professional. They have the best grasp of both the overall market and also the local trends.
For example, I know the market where I live and work (Northern Virginia area) and I know the real estate market overall, but I would not know local factors if you are in another area.
You can also ask around the neighborhood to see if homes are getting multiple offers. Or if you are buying, how your friend’s experience was looking for and writing offers on homes.
National trends can be found in business news. It is a good idea to check on housing trends overall just to get a feeling of the economic conditions that may affect housing.
Timing the Market
So do you wait to buy and sell until it tips into your favor?
Just like any market, it is impossible to time, and impossible to know for certain what will happen next. Waiting to buy could mean you miss out on appreciation, a good investment or a great home for yourself.
When to buy and/or sell a home should depend more on your specific situation than trying to wait for the market to act a certain way. The market could play into your personal goals, but it should not be the sole deciding factor.
A seller’s market and buyer’s market in real estate refers to who the market favors as far as supply & demand and other factors.
It does not mean a seller’s market is a bad time to buy and a buyer’s market is a bad time to sell, and vice versa. It depends on your personal real estate goals and a variety of other factors.
Have a question? Feel free to reach out below.