What is a Buyer’s Market in Real Estate?

If you’re in the market for a house or you’re planning to sell your home, you may have heard the term “buyer’s market.” What is a buyer’s market, and what does this term mean for your home purchase or sale?

What Does “Buyer’s Market” Mean?

If there are more homes on the market than there are buyers, it’s a buyer’s market. That means the market favors the buyer. In a buyer’s market, sellers may need to lower prices, offer more incentives, or be flexible on terms such as the closing date.

These are the most recognizable indicators that it’s a buyer’s market vs a seller’s market:

• Homes stay on the market longer.
• Price reductions are more common.
• There are fewer competing offers on properties.
• Sellers are more motivated and willing to offer concessions and other incentives.

Deeper Analysis

For a deeper analysis, agents and industry analysts might use the following metrics to determine if it’s a buyer or seller’s market:

• Inventory-to-sales ratios, which compare new listings coming on the market to homes under contract. A ratio above 1.0 means more homes are being listed than sold (buyer’s market), while a ratio below 1.0 indicates a seller’s market.
• Months of supply, which tells you how long it would take to sell all available homes on the market if sales continued at the current pace. Less than 4 months indicates a seller’s market, while 6+ months indicates a buyer’s market.
• Absorption rate, which measures how quickly homes are being purchased. Absorption rates over 20% indicate strong buyer demand, while rates under 10% indicate weak demand or excess inventory.
• Price trends, which look at figures like year-over-year changes in median home prices. One key price trend is the percentage of homes selling above or below the asking price. In sellers markets, 60-80% of homes sell at or above asking. In buyer’s markets, this could be 40% or less.
• Time on the market is a good indicator of how quickly homes are selling on average. Under 30 days indicates a seller’s market, whereas 60 to 90 days signals a buyer’s market.

If you want to dig into the statistics, you can track these figures, and you may be able to spot where the markets are headed in different regions.

Advantages of a Buyer’s Market for Buyers

If you’re buying in a buyer’s market, you’re in a good position. Here’s how to handle your hunt for a new home:

• Take time to shop around. In a buyer’s market, there’s plenty of inventory. You don’t need to rush into a decision.
• Negotiate on price, closing costs, and concessions like repairs.
• Don’t skip the home inspection. You have the upper hand in the negotiations. You could get a better price or more concessions depending on what the inspection turns up.
• Be prepared to walk away if your contingencies aren’t fulfilled. There will be other homes for you to tour.
• Look around for the best lender rates and terms. You should be able to get a financing contingency and you don’t have to worry as much about the supply of available homes. This in turn may lead to secure favorable financing.

Strategies for Sellers in a Buyer’s Market

If you’re selling a home, a buyer’s market presents challenges. You will not be in as strong a negotiating position. You’ll also need to be more strategic in the decisions you make. Here’s how to sell a home in a buyer’s market:

• Price your home Have your real estate agent do a comprehensive market analysis to see what homes similar to yours have sold for, and how long they’ve stayed on the market. Your agent will advise you about pricing, but expect to list at below fair market value.
• Prepare your home for sale by making the necessary repairs, optimizing your home’s curb appeal, giving the walls a fresh coat of a neutral-colored paint, and staging it professionally.
• Be prepared to offer concessions and be flexible on the closing date.
• Arrange for bridge financing in case you have to buy another home before you sell your current one.
• If you get an offer early on, give it serious consideration, even if it’s not as high as you were hoping for.

Is It a Buyers or Sellers Market Right Now?

A recent report indicates that the US housing market currently has 500,000 more sellers than buyers. Although that may indicate a strong buyer’s market, homes in many areas are still priced out of reach for the average buyer.

That said, the real estate market varies by region; national data does not always translate to specific areas, and some metropolitan areas even have micro markets that don’t behave the same way as the surrounding area. To determine if your area is a buyer’s or seller’s market, look for reports that are specific to your area, especially reports that cite reliable sources.

When Will It Be a Buyers Market Again?

Real estate market cycles typically last between 7 and 10 years, so if you’re waiting for the next buyer’s market, plan to save for a down payment in the intervening time.

Keep in mind that different areas may be in different phases of the cycle, and that there are also balanced phases, which favor neither buyers nor sellers. Your best bet is to get local information and to work with a real estate agent who understands the market in your area.

It’s also important to recognize that events like economic downturns, political uncertainty, and even pandemics can cause the market to shift. Predicting the timing of these shifts can be difficult even for professional analysts!

Conclusion

Understanding market cycles can be complex, but knowing whether you’re in a buyer’s or seller’s market affects everything from timing your home purchase or sale to how you negotiate. Be sure to check information specific to your area when determining how to proceed, and always work with a real estate professional who is an expert on that area.