Most people have heard the real estate terms “buyer’s market” and “seller’s market.” But what do these mean, and how do they affect your ability to sell or buy a home? Read on to learn how supply and demand influence home prices.
What is a Buyer’s Market?
With a buyer’s market, the supply of available homes for sale outnumbers the amount of motivated buyers who are interested in purchasing a home. Because they have so many options, buyers can afford to be pickier. This forces sellers to be more reasonable with their pricing.
If you’re searching for a new home, a buyer’s market is the best time to make a move. In many instances, you will be able to get a home for a lower cost than you would if you were shopping during a seller’s market.
On the other hand, if you are hoping to sell a home, you will have a harder time during a buyer’s market. Not only will you have to price your home to compete with other available inventory; your home may take longer to sell. If your home stays on the market for a while, you may also have to lower your asking price or make certain concessions to secure a buyer.
What is a Seller’s Market?
With a seller’s market, the supply of available homes for sale is less than the number of motivated buyers who are interested in purchasing a home. Because they have fewer options and increased competition, buyers cannot afford to be as picky. This allows sellers to raise their asking prices.
Whenever demand exceeds supply, multiple buyers often become interested in a single home, resulting in bidding wars. If you’re planning to sell your home, a seller’s market is the best time to make a move. In most instances, you will be able to secure your asking price; you may also be able to get a higher offer if there are multiple interested buyers.
If you’re trying to buy a home in a seller’s market, the seller will have the advantage. If there are other buyers interested in the same home you’re making an offer on, you will find it very difficult, if not impossible, to haggle for a better price. In fact, you might even lose the opportunity to buy the property if a competing buyer swoops in with a higher offer.
Seller’s markets are also commonly referred to as “renter’s markets” because potential buyers often need to keep renting until they can either accumulate a higher down payment to help compete with other buyers or wait for market conditions to change.
How Do You Determine the State of the Market?
There are a number of different factors that determine real estate market conditions, both nationally and locally. If an area has a booming economy with a lot of great employment opportunities, more people are going to want to live there, and limited housing opportunities will create a seller’s market. The same works in reverse.
Shifting mortgage rates can also drive buyer demand since they help determine loan affordability. At the same time, the supply of local housing is constantly in a state of flux. Home inventory can increase when people move elsewhere, whether they’re downsizing or moving into a larger home for an expanding family. Similarly, inventory can increase with new home construction.
On the other hand, housing inventory can decrease due to natural disasters such as earthquakes, fires and floods. Limited land availability can also lead to plot shortages that limit new home construction and make existing properties more valuable.
The real estate market can also go up and down based on the season. There are typically more homes for sale in the summer. This means you could have a seller’s market during the winter and a buyer’s market when the weather warms up.
With all this in mind, it can be difficult for ordinary buyers and sellers to assess current market conditions. One way to determine if it’s a seller’s or buyer’s market is to analyze available inventory. If inventory is low, it is most likely (though not always) a seller’s market. If inventory is high, it is most likely (though not always) a buyer’s market.
With so much to consider, however, it’s generally best to seek counsel from a reputable real estate agent to help you get a clear understanding of existing market conditions.
With 60-plus years of combined experience, The Wheaton Team specializes in residential real estate throughout Colorado Springs and all of El Paso County. Let us guide you through each step of the buying and selling process, so you can achieve your real estate goals. Contact us today to get started.
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