If you’re thinking of buying a home, thinking of selling a home, or even have just the smallest shred of interest in real estate, you may have heard the terms ‘buyer’s market’ and ‘seller’s market’ used before. What do these terms mean and how do they affect buyers and sellers differently?
These terms are used to describe the state that the residential housing market in a given area is currently in. Ultimately it all comes down to supply and demand. In other words, Does the demand for homes exceed or outweigh the amount of available inventory?
Buyer’s Market
In a buyer’s market, the demand for homes is lower than the available inventory, meaning buyers have more leverage to negotiate with the seller on the terms, price, or timeline. During a buyer’s market, there are also more choices for the buyer, so they don’t ever have to feel like they are settling on a home.
What Causes a Buyer’s Market?
Short term interest rate environment, where interest rates dip for a certain period of time. This is a good opportunity for a buyer to not only get a great price on a home but also secure a really low rate on their loan.
Local reasons can cause the market to slide too, such as local politics, large businesses opening or moving headquarters, and high or low interest rates.
Seller’s Market
In a seller’s market, there are more buyers than there are available listings to purchase, so the buyer demand for housing far outweighs the inventory that is available to buy. As you can imagine, this creates an environment within the market where there are sometimes 3-4 offers on a given home, causing buyers to bid higher in order to be the winning offer. Bidding wars and price escalations are also commonly seen during a seller’s market, where buyers are competing against each other and will do whatever it takes to be the one to purchase an individual home. If you are wanting to sell your home and want to yield the highest return possible, this market is the best type to sell in.
What Causes a Seller’s Market?
A seller’s market is measured using the metric of 'months of available inventory,' and can be determined by answering the following question: For all of the listings currently on the market in a given area and at a given moment, how long would it take that existing inventory to be snapped up by the buyer demand? Anything less than 6 months means it is a seller’s market.