As real estate professionals, one question we continuously get from family, friends, acquaintances, and people we meet:
How’s the market?
And our response is usually the same:
That depends; are you buying, selling, or investing?
Like any market, buying and selling properties comes down to the law of supply and demand. The real estate market is continually changing and evolving. Part of our job is to stay on top of inventory and trends.
The real estate industry is in a constant flux between a buyer’s market and seller’s market, depending on a variety of factors. These can include the season (for example, more homes are put on the market in spring and summer months), location, local economy, and mortgage rates, among others.
A buyer’s market is when supply, or the number of homes for sale, exceeds the demand, or number of buyers looking in that area. In a buyer’s market, homes will typically sit on the market for an extended period and sell for less than they would in a seller’s market. This allows buyers to negotiate a lower purchase price.
When there are more buyers than there are houses for sale, it is considered a seller’s market. During a seller’s market, properties sell at a faster rate. Multiple offer situations most often happen during a seller’s market. These situations allow the seller to choose the offer that is best for them – whether it is an all-cash offer, one with no contingencies, or an offer above asking price.
How to Differentiate between Markets
Looking at the inventory, or supply, can help you determine if it is a buyer’s market or seller’s market. To determine the market, we look at not only how many properties are for sale, but how long they have been on the market. This is called months of inventory, or months of supply.
For example, if there are 100 homes on the market in a particular location, and 20 of those homes sell each month, it would take five months before all 100 homes sold. In this case, the months of inventory is five months.
A buyer’s market occurs when there are over six months of inventory, while a seller’s market is under six months of inventory. A balanced market occurs when there is six months of inventory.
If analyzing market data doesn’t appeal to you, no worries. Your real estate agent can go through the inventory of your town and explain what it means for you – whether you are buying or selling.
Ready to learn more?