Aaron Robbins

I’m sure most of us are hearing all the time that we are currently in a seller’s market, but what exactly does that mean? The short answer is the demand for housing is higher than the inventory. A buyer’s market, as you may have already guessed, is the opposite. There are some key traits that occur when we are in one or the other, and some tell-tale signs of what the market is soon to be.

In either markets, you will notice that the cause and effects of each are sometimes identical, which gives them continual momentum and makes the real estate market a little bit of a lagging indicator of a communities economic status. For example, a sellers market can be caused by low inventory, but then on the same foot, a sellers market can cause even lower inventory.

Seller’s Market
A seller’s market is typically a result of

Good Economic Factors: The job force is strong and the economy is thriving, encouraging people to consider home ownership for themselves

Lower Interest Rates: Mortgages cost less, which encourages first time buyers to take advantage and make the move to ownership. Experienced and first-time buyers alike are able to qualify for higher purchase prices when interest rates are down and the economy is thriving

Low Inventory: Naturally, when demand is greater than supply the inventory won’t last long. So far this month our median days on market is only 6 days

Rapid appreciation: Due to low inventory, buyers are getting used to submitting multiple offers before they can get one accepted. Sellers can increase the prices and someone will usually be willing to give it if it means they can finally get a house

I want to note that when I say “rapid appreciation”, that means that the value of homes are rising, not just the price. The difference being that just because you bought during a seller’s market, doesn’t mean that you are going to lose money. The market has simply adjusted to a new normal. There is still a very good chance that houses will be much more expensive 10 years later.

To summarize, buying a house in a sellers market does not mean you are getting a bad deal. It simply means the value of houses are rising rapidly.

If the market does a 180 and becomes a buyer’s market shorty after you buy a home, there is a possibility you might lose some money in your equity- the house value might even become lower than what you owe on it- but if there is one thing history has taught us, is that real estate appreciates over time.

In the long haul, houses do go up in value. You can look at pricing trends over the last 10, 20, 50, or 100 years and see how prices have been trending. In our current market filled with record high (and sometimes slightly crazy) prices, I am still confident that in 10 years we will be looking back at today’s prices like they are steals.

Buyer’s Market
A buyer’s market can be caused by some of these:

Higher interest rates: Higher interest rates limit buyers ability to pay higher prices, and some first-time buyers will have a harder time getting approved with higher rates

Higher Inventory: Fewer buyers in search of a home will cause houses take much longer to sell

Less aggressive pricing: In this type of market, the buyer holds more power than the seller. The buyer can negotiate more because the seller might not have another serious buyer for another few weeks or months

In this market, house values still typically increase, unless it is a period of recession or a market correction. You can often times get better deals on houses during a buyers market than you could buying in a sellers market, because there is so much less competition for the same property. But for the sake of conversation, there is in a way another concern of buying in a buyers market.

In such a market, the values aren’t rising as much, but that makes it is easier for the market to turn south on you. For example, if houses are appreciating at 3% a year, it could quickly turn to 0% or -3%. On the contrary, if you buy in a sellers market where they are experiencing say, 14% increase in value a year, it will be a lot more unlikely that values are going up 14% one year and drop down to 0% or -3% appreciation the next year.

Stratified Market
A stratified market occurs when a location has both a buyer’s and seller’s market, depending on the price range. Naturally, most locations have more of a seller’s market around the lower and average price range because so many people can afford and want to buy those homes, but less demand in the higher price ranges due to less people who can afford them. Some markets are the opposite, the higher price range has lot’s of competition and is a sellers market, and the lower price range has less competition and is more of a buyer’s market.

What kind of market are we in?

We are currently in a sellers market, though it has cooled off over the last few months, and is starting to show signs of becoming a buyers market. Interest rates have increased noticeably, Americans have less money to spend on housing because of economic hardships, and as a result, we now have increased inventory, and sellers are being forced to lower prices and face more days on market.

Although the interest rate spike has eaten into the purchasing power of many, buyers are still using this time as an opportunity to view more houses for sale, compete against fewer other buyers, and negotiate for the most favorable terms possible. All of which were near impossible just a year ago in the midst of the hottest sellers market we had ever seen.

I hope this helped clear up some cloudiness around the topic of buyer’s and seller’s markets. If you have any questions, I would love to hear from you. Have a great day!