Timing is important in any business transaction, but for real estate investors, it is vital. Whether you are selling or buying a home, multifamily rental property, or Airbnb, understanding whether the market is a buyer’s or seller’s market is key for many reasons. If you are considering investing in homes for sale, is now a good time to buy a house? Are home values at a high point, or going through a dip in valuation? There are easy ways to know if it is a buyer’s or seller’s market. Here are the methods real estate investors use to determine it is a buyer’s or seller’s market.
Housing Market News
Fire up your mobile device, desktop, or turn on the old-fashioned TV and the talking heads will tell you if they think it is a buyer’s or seller’s market. These reports can either be factual, and report to you housing market news, report on mortgage trends, or they can be anecdotal and local. For example, news reports centered around, “lack of inventory,” generally gives us an indication that with inventory low, it is a seller’s market. Of course, that only is true if there are more buyers than the low number of real estate listings.
Mortgage Rate Trends
Mortgage rate trends help to answer our pressing question about buyer vs. seller’s markets. When mortgage rates move, so too does the market in many cases. Is it a buyer’s or seller’s market if rates are in decline? Perhaps both. Low interest rates make it both easy to sell and buy a home. Rates trending lower is usually a positive thing for the housing market overall, but it won’t tell you if the market is beneficial to buyers vs. sellers.
By contrast, a rising interest rate, or a relatively high interest rate, generally points to a buyer’s market. This is because sellers often slow their roll during interest rate rises and those who can buy with either cash or without concern of higher monthly payments may find that they have fewer competitors when shopping for a rental property or investment property.
When we hear about “Market Corrections,” the news is generally negative and indicates that the index or average value of something has gone down. This is strictly perception and opinion. A market correction that drives prices back down after a run-up in values is a great time for real estate investors to find deals. As houses slow their increase in value or decline in value, sellers are more interested in closing deals quickly for fear of the value going lower while they sell. A buyer’s market is indicated when property values decline.
The converse is also true. Across most of America, there are rising values. Real or imagined, the feeling that most industry watchers have is that inventory is constricted and buyers have fewer properties from which to select. Finding a cash-flow positive property may be challenging. Thus, a seller’s market is indicated.
Time On The Market
One way to determine if it is a buyer’s or seller’s market is the time it takes for a new listing to come under the agreement. Every source of real estate listing includes the time the property has been listed measured in days. If a scan of real estate listings shows a relatively low number of days on the market, it is a sure sign that homes are selling quickly after they are placed on the market. Generally, this indicates that sellers are quickly getting the price they want or even more than asking. Hence, a seller’s market is in play. Housing market predictions are often proven true or false simply by looking at the time on the market for listings.
Ask An Agent
Is now a good time to buy a house? An agent can tell you. Nobody has the pulse of the market better than the agents who list, sell, and help close properties. A good real estate agent knows minute to minute how the market is trending and can tell a buyer or a seller whether it is a buyer’s market, seller’s market, or relatively neutral. What they watch for are tipping and inflection points.
Agents work hard to find the right price to list a home. They want their seller to have the highest practical revenue from the sale of the property they are representing, but they also take into account the seller’s timeline. If there is no emergency to sell, the home is priced at or above what is considered to be market value.
Even experienced agents cannot price every home perfectly. In some cases, they set the price a bit low and offers poured in quickly, perhaps at above the asking price. In other cases, buyers hold off on offers and the home sits on the market awaiting a buyer. Agents list many homes at a time, and they have a network of co-workers and peers with whom they share information. If the word on the street is that homes are all being sold at asking or after a bidding war, the market is a seller’s market. By contrast, if homes are being reduced in price before getting offers, it is a sure sign that a buyer’s market has arrived.
Buyer’s or Seller’s Market – Why Does It Matter?
Which type of market is in place, buyer’s or seller’s matters in many ways. Consider a seller’s market. A property owner need not paint every wall, fix every minor problem, refinish every floor, and worry about the small things. In some cases, inspections may even be off the table if a bidding war ensues. Buyers will be ready to accept a bit of a to-do list because the market is tight. Shoppers in a seller’s market had better have their ducks in a row. Mortgage commitment letters or cash, a downpayment in hand, and a willingness to take action immediately when a property of interest is listed.
By contrast, in a buyer’s market, any home for sale had better be in its very best condition possible to avoid slowdowns after an inspection. Things like Septic certificates from the local town should be done in advance, and the home staged for showing on day one of the listings. Buyers will enjoy time to consider options, and inspections are likely to be routine.
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