An understanding of housing markets is absolutely necessary for any real estate investor. While it is more important to be aware of local and regional housing markets, you should still know the basics of the national housing market, as it outlines all housing markets within the country. That begs the question: What is the current housing market in the US like? Is it a seller’s market? A buyer’s market? Or even neither?
Before we explain the status of the current housing market, we need to differentiate between a seller’s market and a buyer’s market.
Related: 6 Real Estate Market Trends of 2017
What Is a Seller’s Market?
A seller’s market is just what it sounds like, a market that favors the selling of real estate properties. In other words, there are more potential buyers than available real estate properties, and thus demand surpasses supply. A seller’s market tends to have a ratio of 3:5 for sales to listings.
Since there are more buyers than sellers in this market, sellers have the advantage. This advantage is most manifest when negotiations occur, as multiple buyers will make offers for a property, leading to bidding wars. Bidding wars mean increased interest in a property, which is something all sellers strive for, as it leads to quicker sales at higher prices.
So, if you are planning to sell your investment properties, a seller’s market is what you should be looking for. Appreciation is the equity factor in the potential capital gains of the sale. If you are a buyer, on the other hand, you will be on the defensive side of things. While there is nothing inherently complex in buying an investment property in a seller’s market, the process becomes slightly more difficult. As previously mentioned, bidding wars tend to break out in a seller’s market. And as you’d expect, the highest bidder tends to get the desired property. This does not mean you should avoid buying in a seller’s market. Just realize that its conditions could make matters slightly more difficult. Still, you could find ways to ease these purchases. For example, to sidestep bidding wars, try finding off market properties.
Related: Are off market properties a good real estate investment?
What Is a Buyer’s Market?
Unlike a seller’s market, a buyer’s market has more real estate properties than sellers (supply exceeds demand). A buyer’s market is a market for, well, the buyers! There are many different properties available for purchase, giving real estate investors various potential choices. Instead of having competition among buyers as in a seller’s market, competition in a buyer’s market is among the sellers. Bidding wars are greatly reduced in buyer’s markets, so buyers end up paying less for properties in this type of market.
If you plan to sell properties in a buyer’s market, be aware that the property might sit on the MLS for longer than you expect. Also, the property might be sold for a (slightly) lower price than intended.
Is It Always a Seller’s Market or a Buyer’s Market?
We are one step closer to knowing and understanding the current housing market. Before we can do that, however, there is one more market type that needs to be discussed.
Sometimes, a market is neither a seller’s market nor a buyer’s market. The two types of markets cancel out each other, and a neutral market, or a balanced real estate market, is formed. In other words, there is not much of a difference between the supply and the demand in the housing market. Since the market is neutral, there is not much fluctuation between property prices. Properties also tend to remain on the market for a consistent period of time.
The 2017 US Housing Market Is…
Now that we understand the differences between a seller’s market, a buyer’s market, and a neutral market, we can finally reveal what the current housing market is. Drum roll, please. The current housing market is… a seller’s market!
The current seller’s market is not like any ordinary seller’s market. According to CNN, it’s the most profitable seller’s market in about a decade! There are many sources of data pointing to this. Based on a report from Attom Data Solutions, sellers in the first quarter of 2017 had an average gain of $44,000. The last time the net gain of a purchase was this high was in 2007.
What has made the current housing market so suitable for selling an investment property? Part of it is due to the low housing supply and the increased demand. Another part of the answer, ironically, is the most recent exemplification of a bad housing market: the recession.
Before the recession, the average home seller sold a property after holding it for four years. This hasn’t been the case since the recession, especially in 2017. Homeowners during the recession were, rightfully, afraid to sell their homes. Instead, they waited until the situation improved. Now, years after aspiring home sellers have held properties, the average seller has owned a property for eight years.
These additional four years have helped appreciate the property’s value, leading to higher property prices. This, coupled with bidding wars due to a low housing supply, resulted in high property prices and an overall gain when selling properties.
Will the Current Housing Market Change Any Time Soon?
The current housing market is a lucrative seller’s market, but how long will this last? Apparently, not very long. By 2018, if not, by 2019, the national US housing market will be a buyer’s market.
Related: Buying an Investment Property: Get Ready for It to Be a Buyer’s Market
This is mainly due a higher supply of rental properties. The inventory of real estate properties is expected to rise as construction incentives across the country are increasing. Another strong factor is that the US economy is improving, which can allow more people to become buyers. These two factors will eventually change the current housing market and lower property listing prices.
The Bottom Line
The national current housing market builds the foundation for all markets across America. Right now, it just so happens that sellers will make the biggest bang for their buck. If you were planning to buy investment properties around this time, do not despair. While the national housing market is very important, what matters the most is your local housing market. Local housing markets can differ vastly; San Francisco’s burning market is nothing like Tampa’s profitable market.
Related: These Buyer’s Markets are the Best Markets to Invest in Right Now
How can you learn more about your local market? By using Mashvisor, of course! Use Mashvisor’s predictive analytics to evaluate markets, and visit Mashvisor’s blog for updates on the current housing market!