Am I in a buyer or seller’s market?
Market: seller or buyer?
- A buyer’s market will see houses, on average, listed for more than six months before sale.
- A seller’s market will see houses, on average, listed for less than five months prior to sale.
- Your strategy as a buyer will depend on whether you are in a buyer or seller’s market.
Is it the best of housing markets, or the worst of housing markets? Oftentimes, you can find both buyer and seller’s markets in the same state, or even within the same city.
Whether it’s a good time to buy or sell a home depends on precisely what neighborhood you’re looking at, as well as your financial situation and objectives.
Seller vs buyer’s market
The absorption rate, or how many months it takes for a house to sell, is an important indicator of a seller or buyer’s market. A seller’s market is characterized by more demand than supply, which in residential real estate means that the absorption rate (time to sale) is less than five months. A balanced market sees homes remain on the market for five to six months. Anything longer is indicative of a buyer’s market.
You can determine the absorption rate of your city or neighborhood with the help of a real estate agent or through home-sales and current-listing data from the Multiple Listing Service.
Say, for a simple example, that 36,000 homes were sold in your city within the past six months. Divide 36,000 by six months to get 6,000 — meaning, on average, 6,000 homes were sold each month. If there are currently 25,000 homes on the market in your city, divide 25,000 by the average number of homes sold monthly (6,000) to get an absorption rate of 4.1. This means it would take about 4.1 months to sell all of the homes currently on the market, signaling high demand and a seller’s market.
What it means for buyers
Understanding whether you’re in a seller or buyer’s market gives you more insight when comparing homes and a better understanding of your position at the negotiation table. In a tight seller’s market, a home that has been listed for several months should give you pause, because there may be a reason why it is not selling as quickly as others — such as issues identified during the home inspection.
If you find a home you love in a seller’s market with a competitive bidding landscape, you should get preapproved for a mortgage and consider sweetening your offer by assuming some of the closing costs or even waiving certain contingencies. In a buyer’s market, on the other hand, you should be able to negotiate the purchase price more aggressively and even request that the seller take care of certain home repairs prior to purchase.
Buy or rent?
Whether or not you are in a seller or buyer’s market also can affect your decision to purchase or not, depending on your finances and individual goals. If a seller’s market sees average housing prices significantly exceed your budget, it may not be wise to purchase a home at this point.
You can consider renting in the area if you don’t already, and wait out the market cycle. If your financial situation is strong — say, you’ve saved up for a large down payment — and buying makes sense for your objectives, a seller’s market should not discourage you from making a well-informed purchase.
Real estate markets shift as rapidly as the seasons, so postponing your purchase just a few months could make a difference. That being said, markets are notoriously hard to predict. If you’re ready to buy, trying to play the market by a few months could be more of a headache than a benefit.