What’s the Difference Between a Seller’s Market and a Buyer’s Market?As we begin 2019, if you are about to start looking for a home, you may come upon these terms. Beyond a simple definition for each of these, it is very important to know the different factors that define each, and how the different markets can impact a buyer. This article will examine these areas.
Seller’s Market Defined
A seller’s market exists when there are many more buyers seeking to purchase than there are homes available on the market. Stated differently, there are less houses available to satisfy a larger pool of buyers in the marketplace. This lack of listing inventory leads to rapid (at times excessive) price appreciation, very quick closings, many cash buyers, and the presence of bidding wars for properties. We have been in a seller’s market for the last 18-24 months. The major reason this has occurred is the shortage of inventory which has fueled rapid price acceleration nationally.
In a Seller’s Market the Following Occurs:
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Much less housing inventory on the market ( usually 4 months or less )
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Houses sell very quickly, and in many cases sell above the asking price
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Sellers wield the most power in a negotiation, with very few concessions needed to move a property
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Sellers reject offers that are contingent upon the sale of an existing home
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Sellers prefer a mortgage pre-approval letter, and might ask buyers to provide proof of finances available for the transaction.
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Presence of bidding wars between buyers
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Median home prices are rising, often rapidly
If you are looking to buy a home in a seller’s market, you might not enjoy the experience as much, because as the consumer, you are at a disadvantage versus the seller. You will not be able to set the terms in a price negotiation or for financing, and if you get in a bidding war your bid will not be accepted unless it is the highest. As a buyer you may have to settle for less than what you had hoped for due to the rapidly escalating prices in the market. First time buyers could have a very frustrating time successfully navigating a seller’s market. There is also a greater chance that you will overpay for a house in a seller’s market, and if you are not going to stay in the home for 7-10 years, you may end up with less equity than you thought you had when it’s time to sell.
Buyer’s Market Defined
A buyer’s market exists when there are not enough buyers looking to purchase houses, and thus there is an excess of available inventory (homes for sale) on the market. Stated differently, there are more homes on the market than there are buyers who are seeking to buy them. In this type of market, prices are highly negotiable, price appreciation is very slight, or even nonexistent, and homes take a long time to go under contract and close.
In a Buyer’s Market the Following Occurs:
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Large amount of housing inventory on the market ( greater than 6 months)
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Houses take longer to sell, and when they do, often sell below asking price
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Buyers have the ability to set very favorable terms in a negotiation, and can frequently get the seller to pay closing costs and points on their mortgage
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Sellers are willing to accept a buyer’s offer that is contingent upon selling an existing home before closing
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Sellers will accept a mortgage pre-qualification letter with an offer
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Median home prices are trending down
If you are looking to purchase a home in a buyer’s market you will likely have a more enjoyable experience, because as the buyer, you have more power than the seller. This allows you to set the terms that are the most favorable to you for financing the home, and you will have a greater ability to negotiate the price. You will be able to pick from many homes on the market in your price range because there is an excess of inventory, in many instances across all price ranges. First time buyers also have more leverage in a negotiation because of the greater numbers of properties available.
What is the Current State of the Market?
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Given the present level of political dysfunction gripping our country, the current stock market volatility, and a growing feeling of unease about the economy, the seller’s market is beginning to look long in the tooth.
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Conditions appear right for a shift towards a buyer’s market, but there needs to be a measurable increase in the inventory of houses for sale in order for that shift to occur. And because the increase in inventory must gain momentum to become noticed by the marketplace, any shift will be gradual at first.
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In my opinion, one of the best indicators pointing to a vibrant Spring Selling Season would be a jump in inventory. Based upon my conversations with Realtors and my clients, that shift appears to be beginning … there appear to be more houses coming on the market, and sellers appear to be more inclined to negotiate the price of their home in order to sell them. But we are in the early innings of this transition.
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The best way to navigate in either of these markets is to be honest with yourself about how much you can afford each month for a mortgage payment and stick to that number.
If you are on the fence about buying a home in this market, or want to become educated about how to buy a home, or have decided that this is the year you will stop paying rent or living with your parents, I want to help you. Put my 32 years of mortgage experience to work for you.
Robert H. Ruth, Senior Mortgage Banker
NMLS ID: 513243
Direct: 401.789.4441 | Mobile: 401.743.4364
Email: rhr11@icloud.com
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