The media loves to make predictions about the housing market. At the first sign of bulging inventories or falling prices, they’ll happily holler that we’re in a buyer’s market. Unfortunately, journalists are usually late to the party, heralding a particular market when we’ve been knee-deep in it for months.
So, just what is a buyer’s market? The difference between a buyer’s and seller’s market, regardless of which side of the equation you happen to fall into, is important.
Buyer’s markets are characterized by:
- A swollen inventory of homes for sale.
- Little competition from other buyers.
- Falling home prices.
- Sellers have little bargaining power.
Let’s take a look at each of these characteristics.
Swollen Inventory
The most common cause of large inventories of homes for sale in a real estate market is a combination of few buyers in the market and many homeowners listing their homes for sale. It’s a matter of supply and demand.
Falling Home Prices
The economic principle of supply and demand works with most commodities, including real estate. When buyer demand is low but the supply of available homes is high, those homes that are available decrease in value.
Sellers have little Wiggle Room
Buyers are in the driver’s seat in this market. They dictate the terms, they set the price they are willing to pay and they have all the power when deciding whether or not a seller’s price and terms are acceptable. It’s frustrating for sellers to know that they have no wiggle room for negotiations and may have to accept less for their home than they imagined.
This is not the time for sellers to stick stubbornly to an unrealistic price or to refuse to negotiate with buyers.
While you can’t choose the market at any point in time, it’s important to understand that a successful home search depends largely on whether the current market is geared toward buyers or sellers. This way you will know how quickly you need to act and how far you can push during negotiations.