No matter what neighborhood or city you currently live in or may want to move to, the real estate buying and selling market is always swinging toward one of two directions – a buyer’s market or a seller’s market (or sometimes, a little of both).
A seller’s market doesn’t become a buyer’s market over night and if you aren’t tracking indicators during the transition you won’t see the change coming. The five key indicators to watch are interest rates, building permits, home sales, loan defaults and foreclosure sales. Together, they provide a pointer to the market’s overall direction.
Most real estate professionals generally consider a balanced real estate market to be one in which most properties take an average of six months to sell. Brokers calculate this number by tracking the number of days on market (DOM) of every property listed and sold. A balanced market means that there is likely to be at least six months worth of inventory (properties) on hand to sell for the number of buyers in the market. If the number rises above six months inventory on hand, then the market is swinging into a buyer’s market. If it falls below, it is becoming a seller’s market.
A buyer’s market is one in which there are too many properties on the market for the number of buyers. Since supply & demand favors the buyer, properties take longer to sell and prices generally soften or fall.
Many believe that winter is perfect example of a buyer’s market because most buyers aren’t looking to move at this time of the year. Although it is true that there are fewer buyers, there are usually fewer properties on the market as well. Since properties offered for sale during slower times of the year are generally marketed more aggressively, they often sell for as strong a price as they would if they were marketed during in a busier period.
In the spring, a seasonal adjustment occurs. More properties come into the market and buyer activity picks up as families with children (still the single largest buyer demographic) buy properties so that they can move during summer vacation. Because of this, spring is traditionally thought to be more of a seller’s market; however, a buyer’s market can easily exist in the spring, if conditions dictate ‘ that is, there are more properties than buyers, longer DOM numbers and falling prices.
Sometimes, certain events can create an extended buyer’s market even if the local economy is relatively strong. A national recession (or fear that a recession is on the horizon), stock market contraction, lower consumer confidence, mounting job layoffs, rising inventory, declining new properties sales, rising energy costs and other such events can affect market conditions and property values.
Seasonal or not, any time there is more than six months inventory on hand, there is a glut of properties on the market. And, whenever there is a surplus of available properties, prices will begin to soften and sellers will need to adapt to the changing market in order to attract buyers. Proper pricing will be critical and sellers will need to offer special incentives such as seller-carry financing or a large “redecorating allowance’ to attract buyers.
As properties become more competitive, buyers realize that their interest is at a premium and they will begin to increase their demands to sellers. Those nice chandeliers and refrigerators that normally would be excluded in the purchase price of the property, now become bargaining chips for the buyer. The buyer may submit offers with any number of sale contingencies or they may ask the seller to pay more of the closing costs than usual. If the market has begun to swing in the buyer’s favor and sellers aren’t flexible enough to make concessions, they could find their home languishing on the market.