In any given year, a lot of real estate changes hands. In 2020, a little over 5.6 million existing homes sold. That’s to say nothing multi-family units, commercial properties, and even industrial properties.
What makes buying or selling real estate complex is that real estate often moves through a cycle where properties gain value or lose value. Depending on where the cycle is at any given moment, you can find yourself in a buyers or sellers market.
Not sure what that means in practice or what it means for you? Keep reading for a breakdown of the buyers vs sellers market and how it can affect your real estate investment approach.
What Is a Buyer’s Market?
In basic terms, you get a buyers market when the total available real estate available exceeds the overall demand. In other words, more people want to sell their property than there are people who want to buy it. This state of affairs drives down the overall cost of real estate as people look to offload their property.
For example, let’s say that a major employer in a city moves their manufacturing plant to another state or another country. While some of those workers will likely find other local jobs, a lot of them may end up finding work in other parts of the state.
That can mean a lot of houses come onto the market all at or near the same time. It may even mean a lot of property becomes available in specific neighborhoods. All of that available real estate can lower overall prices in the area.
That means that anyone looking to buy a home in the area can likely negotiate a better price.
What Is a Seller’s Market?
A sellers market is the precise opposite of a buyers market. In that scenario, there are way more people who want to buy real estate in a given place than what is available. The demand exceeds the inventory, so to speak. That state of affairs drives the overall prices of real estate up.
For example, let’s say a city enjoys exceedingly low unemployment and has a strong tech sector presence. That means there is a good chance of people with higher incomes looking to buy homes. As they snap up available homes, the average prices for homes go up.
Property owners can demand higher and higher prices because the total options available keep shrinking. It’s reasons like this that a single-family home in Washington D.C. can cost over $1 million.
It gives sellers a lot of leverage in terms of the final shape of the sales deal. It goes beyond just the selling price.
For example, someone may say: “I want to sell my house with no closing costs.” If the sellers market is strong enough in their area, the seller could make the buyer pay all the closing costs to seal the deal.
Buyers vs Sellers Market
Of course, the buyers vs sellers market description isn’t as straightforward as some might imagine. For example, you might read or hear on the news that it’s a sellers market with real estate on a national level. Except, that description is based on national averages.
Local Market Conditions
While it may actually be a sellers market or buyers market on a national level, local market conditions can easily buck those trends. High population density areas like Los Angeles, Silicon Valley, or New York City are routinely sellers markets. The number of people who want to live in those cities dramatically outweighs the available real estate for sale.
Areas where tech corridors develop such as Austin or Raleigh often see sellers markets develop as new employees stream in to take advantage of job opportunities.
A small town in rural Tennessee, on the other hand, may exist in a perpetual buyers market. If there isn’t a lot of local employment available, families will often move away in search of better opportunities. That can leave a lot of real estate on the market with very little in the way of buyers sniffing around.
If an example like the one mentioned above occurs where a major local employer leaves the area, that can create a buyers market where none existed before.
Understanding Local Conditions
There are a lot of signs that let you know if you’re in a buyers market, sellers market, or in a market that is about to shift from one to another.
Local Sellers Market
Keep an eye on local pricing. If the local prices in your area over the last year or two continue to climb, you’re likely in a sellers market. That’s a good time to either hold onto your home and wait for prices to rise a little higher or sell.
Local Buyers Market
If housing prices have steadily fallen, you’re probably in a buyers market. It’s often advisable to wait a while before selling as the market may rebound within a few years.
Stable Local Market
If prices are more or less stable over the last couple of years, you’re likely in a stable local market where inventory and demand balance out. You can buy or sell with a general expectation that waiting won’t save you much or cost you much.
Changing Market
You may see a trend where area housing prices fell or rose for a while, then stabilized or started rising or falling again. This is often a sign that a local market is shifting from a sellers to buyers market or vise versa.
Buyers or Sellers Market and You
A buyers or sellers market can create opportunities for you depending on your needs or wants. If you’re looking for long-term investments or to get into property management, a buyers market is your friend. You can pick up properties and hold out for the market to rebound.
If you’re looking to make money in the short term or simply to leave an area, a sellers market is your friend. You can sell properties you own at a tidy profit.
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