A buyer’s market occurs when the housing market favors homebuyers. A seller’s market occurs when the housing market favors sellers. But what factors determine this fluctuation and what accounts for these differences?
To explain these fluctuations, consider the natural disasters, demolitions and abandonments that reduce the housing supply each year. Then consider all of the development and new construction projects occurring and adding to the housing supply at the same time. Markets are constantly changing – there are always booms and busts and rises and dips – and these markets are a result of the economic principle of supply and demand. Demand refers to how much of a product is desired, and supply represents how much the market can offer.
When there are many homes available to prospective buyers, with supply exceeding demand, a buyers' market occurs.
In a buyer’s market, buyers have the flexibility to pick and choose because there are many homes on the market and few buyers competing for that inventory. If homes are not priced competitively, homebuyers can simply move on to find a better option more suited for their needs, and at a price point that is within reach. When it comes to determining buyer’s markets, you can look at inventory and comparable homes. If more than six months of inventory is on the market or inventory is high compared to previous months and years, buyers are in a great financial situation to buy a home. Comparable sale prices that are higher than active listing prices are a positive sign for homebuyers as well.
On the flip side, a seller’s market occurs when there are not enough homes (low supply) to satisfy the number of buyers in the market (high demand).
A 700-square-foot studio in Manhattan will be much more expensive than the same 700-square-foot studio in an area outside of the city. Why? For the most part, there isn’t enough real estate in Manhattan for the number of people who desire to live there. When demand exceeds the supply, meaning there are more interested homebuyers than there are homes to buy, sellers have the flexibility to increase asking prices. Not only are buyers more likely to pay more due to limited options, they’re more likely to place a higher bid in a competitive market.
Remember, a seller’s market doesn’t necessarily mean that home values are rising. Instead, it just means that homes are on the market for a shorter time, and the variety of factors affecting the market is limitless. Demand for homes is oftentimes impacted by a potential homebuyer’s confidence in his or her capacity to purchase a home. When you think about it, it makes sense – the more secure people feel financially, the more willing they are to purchase a home. Location, the number of foreclosed and short sale homes, the changing character of the neighborhood, and other factors also influence the market. Housing markets can shift from buyer's markets to seller's markets in a relatively short time frame. To make the most informed decision possible, it’s important that you have a trusted adviser to keep you up to date and in the know on these changes.
Network has been a leading real estate agency in the Wilmington area for more than 30 years and has experienced the trends and shifts in the Wilmington market. As an agency, we value transparency. Our Realtors have had tremendous success buying homes in seller's markets and selling homes in buyer's markets. Contact Network Real Estate if you’re interested in learning more about the Wilmington, N.C., market and your position as a homebuyer or seller.