By Erin Gobler
If you’ve ever bought or sold a home, you know what a tumultuous experience it can be. If you’re a homebuyer, a buyer’s market can make it easier to find your new home at a price you’re happy with. But, on the other hand, a seller’s market can mean a longer home search and more money out of your pocket. Here, we explain the difference between a buyer’s market and a seller’s market, what the market looks like today and how buyers and sellers can cope in either scenario.
Buyer’s market vs. seller’s market
- A buyer’s market favors homebuyers. In a buyer’s market, the supply of homes generally outweighs the demand for them, meaning buyers have the leverage to get a better deal. Buyers in this type of market often try to negotiate home prices down, and homes might stay on the market for longer than usual.
- A seller’s market favors home sellers. In this type of market, the demand for homes exceeds supply — in other words, there’s limited housing inventory, and the homes for sale tend to sell quickly. Home prices also often increase as buyers compete in bidding wars for the few homes available.
Are we in a buyer’s or seller’s market?
2020 and 2021 were unprecedented years in the U.S. housing market, and there’s no question that it is — and was, even before the pandemic — a seller’s market. Approximately one-quarter of home sellers received four or more offers in 2021, an increased proportion from 2020, according to Zillow’s Consumer Housing Trends Report.
Going into 2022, it’s impossible to know with certainty what the housing market will look like, but the general sentiment is that supply will remain low. However, demand might ease some if the Federal Reserve makes good on raising interest rates this year, creating somewhat more friendly conditions for buyers.
How to gauge the temperature of the market
If you purchased a home (or tried to) in recent years, it might have been obvious we’re in a seller’s market because of how difficult it is to find an affordable property. However, if you’re planning to buy a home in the future, here are a few measures to help you determine the status of the market:
- Inventory Low housing inventory is one of the key indicators of a seller’s market. When there are less homes for sale, it’s a sign that the amount of buyers in search of a home outweighs the number of homes available. On the flip side, if the market seems flooded with listings, it could be a sign of a buyer’s market.
- Home sales Another way to tell if it’s a buyer’s or seller’s market is to look at recent home sales and compare the original asking or list price to the final sale price. If the sale price is much higher than the asking price, it’s likely a seller’s market. If the home ultimately sold for less than the seller asked, it’s likely a buyer’s market.
- Price cuts Similarly, look to see if the homes for sale have had price cuts (this data is available on Opendoor and other real estate websites). If more sellers are reducing list prices, it’s likely an indicator there wasn’t enough demand or interest, which could point to a buyer’s market. However, this has to be a broad trend — if you can only find one seller that recently cut down their price, for example, it could simply mean their original asking price was unreasonable.
- Days on market Another key indicator of a seller’s market: when inventory moves quickly. If homes are taking longer to sell or sitting on the market for a while, it could be a sign the housing market has turned toward buyers.
- Price trends If home prices in your area are increasing — especially if they’re rising rapidly — it’s likely a sign of a seller’s market. The opposite holds true for a buyer’s market.
Tips for buyers in a seller’s market
There’s no getting around it: Buying a home in a seller’s market can be difficult emotionally and financially. There are some ways to increase your chances of getting an offer accepted, though:
- Act fast. Know that most homes will go quickly, and there’s little time to sleep on your decision. So if you find a home you love, it’s best to make an offer right away.
- Keep the market in mind as you prepare your offer. Know that buyers are at a disadvantage in this type of market, and you’re more likely to end up in a bidding war. Making a competitive offer from the start can help you stand out. Think carefully about your offer price and what contingencies, if any, you’re willing to forgo to land the home.
- Be patient. In a seller’s market, it’s likely going to take you longer than you hoped to buy a home. Most homes are likely to have multiple offers, which unfortunately means there’s a chance someone outbids you. Be firm in your budget and what you want in a home, and be patient until the right opportunity arises.
Tips for sellers in a buyer’s market
If you find yourself selling a home in a buyer’s market, the key is to make it as attractive as possible to prospective buyers. That means making any necessary repairs — ideally before you list the home — since you’re unlikely to find a buyer willing to cover those costs when they move in.
Next, make the most of your listing. Work with your real estate agent (or do it yourself) to have professional photos taken, and consider having a home stager come in to prep your home. As you and your agent craft your listing description, focus on the property’s most attractive features — a revamped kitchen, or a backyard every family dreams of, for example.
Lastly, go into the sale knowing you’re likely to have to make some concessions or even come down on price if you’re eager to sell but not getting many takers.
This article is also posted on Bankrate here.