What is a Buyer’s or Seller’s Market Anyway?
Buyer’s Market: More supply than demand in a neighborhood
Seller’s Market: More demand than supply in a neighborhood
Now that you are aware of that little tidbit of knowledge, let’s look at 5 surefire ways you can evaluate whether you are in a buyer’s or seller’s market!
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1. See How Many Houses There Are to Choose From
Simply put, if the buyer (that’s you in this case) has a lot of houses to choose from, he/she will have incredible negotiating power. In this market, there just aren’t enough people out there wanting to buy homes, or the people don’t have enough money to pay what the sellers are asking. The seller has to work on YOUR terms. This is often good for obvious reasons (great real estate deals and motivated sellers), but if you are in a declining market or problem neighborhood, the property you buy may be difficult to rent out or the value could be dropping if the buyer’s market stems from economic issues.
On the other hand, if the buyer (you again) has few houses to choose from and the bargains are slim, the seller won’t have to entertain your offers, especially if they are lowball offers. Someone else will come by and offer the price they are asking and life will go on. This isn’t always a bad thing–if homes are appreciating, the one you buy might too, but don’t ever buy a property and bank on appreciation. Make sure your house will have solid cash flow or you will be able to rehab it and get the return you are looking for.
2. Watch for Price Cuts on Houses
Watch for price cuts: are the price cuts in your area happening more frequently or are properties holding tight at their asking price and being sold soon after? You may even see that a property sold for more than it is listed, which hints at some bidding competition. The buyer’s market will enjoy price cuts in your neighborhood while the seller’s market will, of course, be in favor of the seller. Whatever price the seller wants, he/she gets, perhaps even more in an appreciating market.
3. Look at Days on Market (DOM):
How long have the properties been listed for?
Watch for quick selling homes. Are homes selling close to or above list price? Check with your real estate agent to see how long their houses stay on the market once they list them. You can also search online and see how many Days on Market (DOM) the property has been listed for. Unless there is something wrong with the house, hot markets won’t allow a property to stick around too long.
4. Are Interest Rates High or Low?
If interest rates are high, it will be difficult for buyers to purchase a home with a mortgage. If a lot of houses are for sale at discounts and prices seem to be declining, high interest rates may have to do with it and indicates a buyer’s market. If interest rates are low, it could mean that money is easy to come by and buyers will be flooding the market.
5. Fannie and Freddie Steps in to Help Buyers
Fannie Mae has really been pushing to get first-time homebuyers engaged lately. Whenever you see Government Sponsored Entities like Fannie and Freddie getting back in the game, you will usually see more incentives for homebuyers, meaning more buyers available. If you applied what you learned earlier in this post, you’ll know that an abundance of buyers gives you a seller’s market.
Since you are coming here as a real estate investor, you probably aren’t a first time homebuyer under these qualifications, but watching these types of incentives can help you keep you finger on the pulse of the real estate market.
Remember, there could be many different markets within your state and country. Economic factors such as number of jobs in the area can even affect neighborhoods within cities.
Other metrics you can go by:
Buyer’s Market = 6 or more months of inventory
Neutral Market = 3-6 months of inventory
Seller’s Market = Less than 3 months of inventory
So, what do you think? Is your neighborhood or city going through a buyer’s or seller’s market right now? Let us know in the comments section below!
Before you leave:
Don't forget to check out our free rental property calculator. This will be a valuable tool in your arsenal as you analyze your existing or potential rental properties.
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- Check out the useful links to help you evaluate your investment.
Thank you for your ongoing support and happy investing!
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buyer’s or seller’s market
The information presented does not consider your particular investment objectives or financial situation and does not make personalized recommendations. This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, AssetRover recommends consultation with a qualified tax advisor, CPA, Financial Planner or Investment Manager.