Buyer's market vs. sellers market — what's the difference?
You may have read any number of news stories and articles that proclaim that we are in a seller's market, and they're not wrong. But what is that, exactly? Understanding the difference between a buyer’s market and a seller’s market is very important when buying a house. So, what is the difference?
First, let's define them, then we'll get into what drives them both.
With so much competition, homebuyers may be forced to take more aggressive action to secure a purchase. That can mean making an offer above asking price, waiving contingencies, accepting an as-is home sale, or paying the full amount up front and in cash. Sound familiar?
In this kind of market, buyers can negotiate more forcefully, putting in offers below asking price, requesting seller concessions and demanding other terms of purchase from the seller.
These are the three main driving forces that determine what type of housing market you’re in:
On the other hand, when listings are few and far between, you might feel the pressure to immediately act on a home. There’s no guarantee that you’ll find a similar piece of property in the same general location within a short amount of time. That can ramp up the pressure to use any tool at your disposal to out-muscle the competition. Speaking of competition …
Why are housing markets so susceptible to seasonal changes? When you’re talking about single-family houses, people want to schedule big life changes — like buying or selling a house — around their kids’ school calendars. So, it makes sense that you might start exploring your options in late spring when the school year is winding down with a plan to move over the summer.
In any event, when consumer demand is high, you’ll face more competition in your search for the perfect home. Pair that situation with low housing stock and suddenly you could be facing an uphill battle to buy any home, much less the right one for you and your family.
The most important conditions to keep an eye on are the current mortgage rates. When rates drop, people stand to pay less interest on their home loans. That can make the prospect of homeownership more enticing than ever.
We hope that helps you understand the difference between those two types of markets, so you can better understand the current housing environment. If you have any questions, please don't hesitate to reach out. As always, we're here to help!
First, let's define them, then we'll get into what drives them both.
What is a seller's market?
A seller’s market is a housing environment where demand outweighs available inventory. In other words, there are more interested buyers than houses for sale. These market conditions give sellers the upper hand over buyers, enabling them to dictate the terms of a transaction.With so much competition, homebuyers may be forced to take more aggressive action to secure a purchase. That can mean making an offer above asking price, waiving contingencies, accepting an as-is home sale, or paying the full amount up front and in cash. Sound familiar?
What is a buyer's market?
On the other hand, a buyer’s market is the polar opposite of a seller’s market: There are more active listings than serious house hunters. All the bargaining power swings to potential buyers because inventory is high and demand is low.In this kind of market, buyers can negotiate more forcefully, putting in offers below asking price, requesting seller concessions and demanding other terms of purchase from the seller.
What determines a buyer’s or seller’s market?
Now that we've defined the two, let's take a look at the underlying causes. Sometimes these forces occur on a national level, but in other cases you may see market conditions vary across different regional markets.These are the three main driving forces that determine what type of housing market you’re in:
- Inventory
- Consumer demand
- Mortgage lending trends
Inventory
Perhaps the greatest factor influencing market conditions is the amount of available inventory. When there are a lot of homes available to purchase, you can afford to be a bit more selective about your options as a homebuyer. Even if a deal falls through, you probably won’t have to wait too long for a comparable alternative to come along.On the other hand, when listings are few and far between, you might feel the pressure to immediately act on a home. There’s no guarantee that you’ll find a similar piece of property in the same general location within a short amount of time. That can ramp up the pressure to use any tool at your disposal to out-muscle the competition. Speaking of competition …
Consumer demand
As we noted earlier, housing market performance is often cyclical. Interest tends to ramp up in the springtime, hit its peak in early summer and then taper off. Consumer demand usually starts to dip in the fall before hitting rock bottom during the winter months.Why are housing markets so susceptible to seasonal changes? When you’re talking about single-family houses, people want to schedule big life changes — like buying or selling a house — around their kids’ school calendars. So, it makes sense that you might start exploring your options in late spring when the school year is winding down with a plan to move over the summer.
In any event, when consumer demand is high, you’ll face more competition in your search for the perfect home. Pair that situation with low housing stock and suddenly you could be facing an uphill battle to buy any home, much less the right one for you and your family.
Mortgage lending trends
The final piece of the puzzle is the mortgage lending industry. Lending trends can have a huge impact on consumer interest, which will feed into the state of the real estate market.The most important conditions to keep an eye on are the current mortgage rates. When rates drop, people stand to pay less interest on their home loans. That can make the prospect of homeownership more enticing than ever.
We hope that helps you understand the difference between those two types of markets, so you can better understand the current housing environment. If you have any questions, please don't hesitate to reach out. As always, we're here to help!