Buyer’s Market vs Seller’s Market
When you’re planning a move, whether you’re upsizing, downsizing, or shopping for your first home, the state of the market can have a significant impact on the home-buying experience. It is important for buyers and sellers to understand the elements that impact the housing market.
At SIRVA Mortgage, we work closely with our clients as they navigate the home-buying process. That means ensuring they understand how being in a buyer’s market or a seller’s market can affect their experience. Here’s what you need to know.
Elements That Impact the Housing Market
The housing market is affected by various factors that can impact how much houses cost and what people are willing to pay for them.
Supply and Demand
The law of supply and demand is what determines whether the housing market favors buyers or sellers. When there are many houses for sale and few people looking to buy, we are in a buyer’s market – meaning conditions are more favorable for buyers than sellers. When the reverse is true and there are more buyers than sellers, we are in a seller’s market – meaning conditions favor sellers.
Median Home Prices
The median home price is the middle point for real estate prices. It is not the same as the average price of homes. This means that half the homes sold above the median price and half sold below the median price. The median price can help a buyer make an educated decision on where and when to buy a house. Rising median prices can indicate a seller’s market, and falling median prices indicate a buyer’s market.
In a strong economy there also tends to be strong wage growth. People who are feeling confident about their economic status are more likely to buy homes, which can increase the demand and thus impact the price of homes.
Mortgage rates fluctuate based on factors such as economic growth and inflation. In a period when mortgage rates are low, housing becomes more affordable and prospective buyers will drive up demand. When rates are high, the reverse is true.
New construction impacts the housing market by increasing the supply of homes available to buy. There is often high demand for new construction because these homes are in pristine condition and more energy-efficient than older homes.
What is a Buyer's Market?
A buyer's market occurs when there are more houses for sale than there are buyers. This condition puts buyers in a position of strength when they negotiate with sellers. They may be able to get a better price than they would at other times.
Characteristics of a Buyer's Market
Here are some of the key characteristics of a buyer's market.
Housing prices may be low
There are many houses available to buy
Economic conditions may be on the downturn
Overbuilding may be an issue
A sudden downturn in the economy can create a buyer's market, particularly if it was preceded by a lot of new construction or layoffs. A buyer’s negotiating power is at its highest in a buyer’s market.
Example of a Buyer's Market
Here's an example of how a buyer's market might be created and how it can benefit you as a buyer. In a town with a population of 150,000 people, there might be 3,500 houses on the market. If a large employer nearby laid off thousands of people, some of those people may want to sell their homes to look for jobs elsewhere. This causes the number of houses for sale to increase to 6,000.
The shaky economic conditions in town may deter people who already live there from purchasing a new home. People who might have been considering a move to the area may reconsider. The high supply and low demand create a buyer’s market. Those who are in the market for a house are likely to get a better price than they would at a time when the real estate market in the area was less favorable to buyers.
House Buying Tips for a Buyer's Market
The condition of the real estate market may dictate your strategy for buying a house. Here are some tips for buying a house in a buyer's market.
Offer less than the asking price. If a home has been on the market for a while, sellers may be willing to accept a lower price to close the deal.
Ask the seller to cover closing costs. Even if you can't negotiate a lower price, you might save some money if the seller will agree to pay your closing costs.
Ask for repairs or improvements. Another negotiating tactic is to ask the seller to repair their home or make improvements to it before the closing takes place.
Add contingencies to the purchase agreement. Finally, you may want to consider adding contingencies related to the home's appraisal, inspection, financing, and closing. These things can save you money and make it easier for you to back out of the deal if it doesn't work for you.
The most important thing to remember about a buyer's market is that, as a potential buyer, you have the upper hand in negotiations. If there's something you want, ask for it. You have nothing to lose. Your real estate agent can guide you when it comes to determining contingencies.
What is a Seller's Market?
A seller’s market occurs when there are more potential buyers in the market than there are houses for sale. A home buyer who wants to buy a house may find themselves in competition with other buyers. This condition gives home sellers a great deal of negotiating power.
Characteristics of a Seller's Market
Here are some key characteristics of a seller's market.
Housing prices may be high
There are few houses available to buy
Economic conditions are likely to be good
New developments may be scarce
In an economic upswing or boom, there may be more buyers who are interested in homeownership. As a result, prices are likely to be high and sellers have a lot of leverage, allowing them to choose between offers for the most advantageous deal.
Example of a Seller's Market
Let's use the same town we used above as an example of a seller's market. The population is 150,000 and there are 3,000 homes for sale. The economy is strong and a major manufacturer announces that it is opening a new facility that will create thousands of jobs.
Buyers flood the market. People want to stay in the area because of the great economic conditions and booming job market, so there are very few new home listings in the real estate market. The buyers must compete for the homes that are for sale, giving the sellers the upper hand.
House Buying Tips for a Seller's Market
Buying a house in a seller's market may be less than ideal, but there are still things you can do to facilitate the process as a potential buyer.
Get pre-approved for a mortgage. This may give you a leg up if you're bidding against a potential buyer who hasn't been preapproved.
Shop for homes under your budget. If you can find a home that suits your needs with an asking price that's lower than your budget, you'll have room to bid up if you need to.
Pay more than the asking price. In a seller's market, it's not uncommon for buyers to offer more than the listing price in an effort to get the house they want.
Offer incentives to the seller. In some cases, you may be able to win over a seller by offering a short escrow period or allowing them to rent back the property while they look for a house or prepare to move.
Hire an experienced real estate agent. Having an experienced real estate agent at your side can help you navigate the ins and outs of buying in a seller's market.
Waive contingencies. We don't recommend this option, but sometimes buyers agree to waive typical contingencies related to the inspection, appraisal, and sale to beat out other buyers.
The most important thing to remember in a seller's market is that you shouldn't throw caution to the wind. You still need to protect your interests which is why we don't recommend waiving contingencies.
Should You Wait for a Buyer's Market to Buy a House?
One of the questions we get asked frequently is whether it's best to wait for a buyer's market to buy a home. While it's undeniable that it's easier – and in many cases more affordable – to buy when the supply of homes for sale is high, it's not always possible or practical to wait for a buyer's market.
It's important to remember that you don't have any control over market conditions. The market is constantly changing and the factors that affect it are not things you can influence or predict. You might wait and find that rates go up, you miss out on a house you love, or you put money that you could be using to build equity into paying rent. The possibility of ending up in a bidding war when housing demand is high may be daunting, but it shouldn't dissuade you from house hunting at the time when you need to buy a house.
The bottom line is that if you aren't in a rush and can comfortably stay where you are, you may want to consider waiting until the market is more favorable to buyers. But, if you need to move or you're in a good position to buy, then you don't need to wait. If you use the strategies we’ve outlined here, you can still get a house you love in a seller’s market.
The process of buying a house will always be partially influenced by market conditions. Understanding the differences between a buyer's market and a seller's market can help you negotiate the best possible price as you work toward your dream of homeownership.
Are you looking for the house of your dreams? SIRVA Mortgage is here to help!