We have all heard about the law of supply and demand. It is a theory that explains the interaction between the sellers of a resource and the buyers of that resource, and it comes into play when it comes to the real estate market. Understanding the real estate market is critical if you are looking to invest, sell or buy. Real estate is local, and every market is different, so recognizing what type of market trend your area is following at the time will make it easier for you to decide when you should buy or sell.
Every city, county, and state has its own unique marketplace. Within this marketplace is also a unique group of buyers, sellers, and trends. You can check nationwide statistics like number of homes on the market, or median home price, but this will not mirror exactly what your area’s market is like. These stats may play a role in your purchase, but they will not be the biggest influence on your decisions. In one part of the country, the median listing price could be around $1 million, and in another, it could be less than $190,000.
There are three types of real estate markets that you can find yourself in locally. These include a buyer’s market, a seller’s market, and a balanced market, and this is where supply and demand comes in.
A buyer’s market occurs when the supply (available homes for sale) exceeds the demand (the number of buyers seeking to purchase homes). There are more properties for sale than there are buyers. In this case, home buyers have the upper-hand. They have more negotiating power and more choices in properties, so if you are looking to buy a new home, a buyer’s market is the ideal time to make your move. Buyers will have less competition and are able to make low offers and negotiate on sales price and closing costs. Sellers may have a harder time in this type of market because the homes take longer to sell, they may need to do more to market their properties, and they might need to lower their price points.
A seller’s market occurs when the demand (number of buyers seeking to purchase homes) exceeds supply (the available homes for sale). There are fewer listings than there are buyers. Seller’s have more power in this type of market because buyers face stiff competition among themselves. A seller’s market often leads to multiple buyers interested in a single property, which will result in bidding wars. Homes sell quicker in this case and sellers are able to demand higher price points and get picky with who buys their home. If you are looking to sell, this would be a good time to do so because you could secure a sale price that is higher than your listing price.
Now in a balanced market, buyers and sellers are on even ground (hence the name balanced market). Supply and demand are almost equal. The number of homes for sale is in line with the level of demand, and neither side has too much power over the other. Here, home prices are not rising or falling steeply, and this type of market usually occurs between the transition from one market to the other.
In most cases, more houses are sold during the summer months above any other time of the year, so the real estate market fluctuates depending on the season. This means it could be a seller’s market in the winter, but a buyer’s market in the summer. Of course this all depends on the area and what the economy is like. If you want to determine if you are in a buyer’s market or a seller’s market, you can look at inventory (the number of homes for sale). So, if inventory is low, it is most likely a seller’s market.
As stated before, real estate is local and every market is different and changing each day. If you want to learn more about these types of markets, today’s housing market, and the housing market crash, check out Aly Yale’s article HERE.