Are you in a Buyer’s or Seller’s Market when it comes to real estate? More importantly, does it even matter?
We hear the terms buyer’s market, seller’s market, and balanced market thrown around all the time. By the end of this you’ll know the difference between each and whether you should be trying to time the market to your advantage.
If this is your first time here, welcome! My name is Lindsay and I‘m a proud Anthem resident and your local REALTOR® with the Wise Move AZ Team at Realty ONE Group. On our YouTube channel and blog we have a lot of fun talking about all things Anthem and real estate, and we would love to have you along for the ride.
Alright first things first:
What are the Different Types of Markets?
There are three main categories. You can be in:
- a Buyer’s Market;
- a Seller’s Market;
- or a Balanced Market
These titles are used to describe the relationship between supply and demand in the market. That’s right, I bet you didn’t expect to be sitting back in Econ 101 today, did you?
These titles can be used in pretty much any industry, but for the purposes of this post we’re going to be talking exclusively about the real estate market.
Variations in Markets
What’s really interesting is that the market can vary from state to state, city to city, or even neighborhood to neighborhood. In fact, the type of market could in theory even vary within the same community between different types of housing. For example, the supply and demand for apartments may be different than the supply and demand of single family homes within the same community.
That means that if you’re considering a move, you will want to understand the nature of the market in the place your currently living and also the market you’re moving to.
Let’s jump in and talk about what each type of market looks like and how that should factor into your decision making.
What is a Buyer’s Market?
A Buyer’s Market occurs when the supply of housing exceeds the demand for housing. We call it a buyer’s market because the market tends to favor buyers. There are many different factors that can indicate whether we are in a Buyer’s market, but one that we like to consider is the months’ supply of inventory or MSI.
Months’ Supply of Inventory (MSI)
Months’ supply of inventory refers to:
“the number of months it would take for the current inventory of homes on the market to sell given the current sales pace”
– National Association of REALTORS®
The inventory typically refers to the number of homes actively for sale in a particular market. For example, if City A currently has 1,000 homes on the market and they’ve been selling an average of 125 homes per month, we would say that the market has roughly an 8 month supply of inventory.
Okay, I know it’s not exactly fascinating stuff, and you’re probably thinking, get to the point. The reason I bring this up is because we typically consider anything above a six month supply of inventory to be an indicator of a Buyer’s market.
Indicators of a Buyer’s Market
Some other indicators of a Buyer’s market would include:
- A downward trend on home prices: Buyers may be able to get more home for their money.
- An increase in the average number of days on market: Sellers may wait longer to receive their first offer or an offer they’re willing to accept.
- Sellers offering concessions to buyers in the form of money or other incentives, like including items of personal property. Sellers may try to make their home more appealing to potential buyers, in hopes of beating out the competition.
- Fewer multiple offer situations: Since there is an excess of homes available, buyers are less likely to find themselves fighting over the same house.
It sounds pretty darn good to be a Buyer in a Buyer’s Market, right? But what if you’re a Seller in a Buyer’s Market? We will be covering our best tips for buying and selling in Buyer’s and Seller’s markets, over our next two videos. So make sure you subscribe to our channel and ring the bell so that you’re notified when those new videos are released.
What is a Seller’s Market?
It’s basically the opposite of a Buyer’s Market. A Seller’s Market occurs when the demand for housing exceeds the supply of housing. It may feel like there just aren’t enough homes to go around, or it may feel like there is nothing to choose from. We call it a Seller’s market because the market tends to favor Sellers.
Months’ Supply of Inventory (MSI)
There are many different factors that can indicate we are in a Seller’s market, and again we like to consider the months’ supply of inventory. Typically, if there is less than four months’ supply of inventory, it’s a good indicator that we are in a Seller’s market.
Indicators of a Seller’s Market
Some other indicators of a Seller’s market would include:
- An upward trend in home prices: Buyers may have to pay more just to beat out the competition
- A decrease in the average number of days on market: Homes sell quickly because supply is so limited. When a Buyer sees a home they like, or even a home they can live with, they may be forced to act quickly.
- Buyers offering above asking price or sweetening the pot in other ways. Buyers will be more inclined to bend to Seller’s demands. You may see Buyers waiving contingencies, asking for fewer repairs, and scheduling closings around the Seller’s desired timelines.
- More multiple offer situations: Since there’s a shortage of homes available, you may find buyers ‘fighting’ over the same homes.
For the most part, life is good if you’re a Seller in a Seller’s market. It’s kind of like having the last piece of cake that all of your siblings want when you’re a kid. You’re not quite sure what they’re going to offer for it. Will you get your chores done for a week? Your bag carried to school? Who knows, but they’ll probably bid each other up, and it’s going to be good!
But what if you’re a Buyer in a Seller’s Market? As I mentioned, we will be covering our best tips to navigate the market in our next two videos.
What is a Balanced Market?
This feels like a bit of an enigma, but if you’re guessing it’s somewhere in between a Buyer’s and a Seller’s market, you would be correct! It’s this magical time when supply and demand match each other and all the buyers and the sellers in the land sit in a circle, sing songs, and hold hands.
But it is certainly less frantic for buyers, and sellers still have a great chance of selling their home in a reasonable amount of time for a good price. It’s a good time.
Months’ Supply of Inventory (MSI)
A four to six month supply of inventory would be a good indicator of a balanced market, as would stable prices.
If you’re not sure what market you’re currently in, don’t worry, that’s your real estate agent’s job. Talk to them about the current market and if they foresee any drastic changes.
Does it Really Matter?
Now for the million dollar question. Of course we would all love to be Buyers in a Buyer’s Market and Sellers in a Seller’s Market but that’s just not realistic. My short answer is that it ONLY matters if you’re in a position where you can time the market. For example, if you’re an investor looking to pick up another rental property you may want to wait for a buyer’s market. Alternatively, if you’ve been thinking about selling your vacation home, you may want to wait for a Seller’s market so that you can fetch top dollar for it.
Personally, I don’t think it’s reasonable or wise for the average consumer to try and time the real estate market. If it were that easy we’d all be rich and I’d probably be recording this video somewhere on a beach.
Before you assume that you should try to time the market, there are three things I want you to think about:
- Costs: You need to think about the costs associated with staying where you are, and the costs associated with where you want to be. It’s going to be important to think about actual costs, opportunity costs, and sunk costs. That’s right, you really have to dig back to those Economics classes you took in college. You need to think about everything, home prices, utilities, taxes, moving costs, mortgage rates, and how they’re expected to change over time. I don’t know about you, but I don’t have a crystal ball and these are all very hard things to predict.
- The Unpredictability of the Market: Speaking of things that are hard to predict, how do you know that a Buyer’s Market or Seller’s Market will show up when you want? How long are you willing to wait? Will it be worth the wait?
- What if your Plan Backfires? What if you’re waiting for a buyer’s market because you want the prices to soften? What if it doesn’t come for a year? Two years? 10 years? Are you still willing to wait? Will the cost savings still be worth it at that point?
It’s enough to make my head spin just thinking about all of those things. People will continue to buy and sell homes in every market, and you need to do what makes the most sense for your family, WHEN it makes the most sense. Don’t put off your dreams or moving on to the next adventure because you’re trying to time the market.
So, there you have it! What do you think? Are you in a position where you can time the market? If you’re like most people, you’re not, and that’s okay. I bought my first house in a Seller’s market and it was still a great investment. If you want to learn how to make the most of each different market, then make sure you tune into our channel over the next two Thursdays. We’ll be dishing out tangible things you can do to make the most of a Buyer’s or Seller’s market, no matter what move you need to make.
Also, if you want to make sure you’re truly prepared for your next move then click this video where we highlight real estate frauds you need to watch out for, or this video where we break down the difference between fixtures and personal property, and why it’s so important to know the difference.
Enjoy those and I’ll see YOU next Thursday!