The real estate market falls into two categories, a seller’s market or a buyer’s market. A real estate investor keen on buying an investment property should certainly consider a buyer’s market. This is because, in a buyer’s market, supply exceeds demand and house prices tend to be lower. On the other hand, a real estate investor aiming to sell property should consider investing in seller’s markets. This is because, in a seller’s market, the demand exceeds the supply, therefore, raising profit margins for real estate investors selling property as they set prices higher due to increased demand. But what is a buyer’s market? And what is a seller’s market? Do not worry, we got you covered. Below in this article, we will explain the two different markets and explore the buyer’s market more in-depth. The following questions will be covered:
- What Is a Buyer’s Market?
- What Is a Seller’s Market?
- Is the US a Buyer’s Market?
- For Investment Property Buyers: What Factors Should You Consider When Searching for a Buyer’s Market?
- For Sellers: How to Make Profit in a Buyer’s Market?
What Is a Buyer’s Market?
A buyer’s market occurs when the housing market favors property buyers. The market is a buyer’s market when property prices are relatively low and there’s a large number of homes for sale available to real estate investors. Real estate agents and experts generally use a six-month sale to determine whether a market is a seller’s market or a buyer’s market. So when investment properties in a certain market take more than six months to sell, then the market is a buyer’s market.
Another method to determine the state of the market is by looking at the ratio of sales to property listings. A buyer’s market is characterized by a ratio of fewer than seven sales per every 20 listings, so the percentage would be below 35%. Thus, we can conclude that supply and demand are two main factors that determine a buyer’s market. Because supply and demand are always changing, markets transform from a buyer’s one to a seller’s one or vice versa very rapidly. If you want to make money in real estate and buy an investment property, then you should definitely do so in this particular market.
What Is a Seller’s Market?
As opposed to a buyer’s market, a seller’s market is one that favors real estate property sellers. A seller’s market is generally characterized by a shortage of properties for sale. The demand exceeds the supply, thus driving property prices up. This, as a result, increases the selling power; a seller who aims to sell a property amid a shortage of homes available can set a price higher. Real estate agents and experts conclude that a market is a seller’s market when the ratio of sales to property listings hits 55-60% or three sales for every five listings.
What factors could cause a seller’s market? A drop in interest rates will allow more people to qualify to buy homes or investment properties. Moreover, population growth and increased employment opportunities also bring more buyers into the real estate market. If you want to sell an investment property, make sure to assess the buying power. Look into interest rates within the area, and assess the inflow of people moving into the area.
Is the US Housing Market a Seller’s Market or a Buyer’s Market?
Before commenting on the US housing market, remember that supply and demand are two factors that can transform a market into a buyer’s market or seller’s market. Let’s delve further.
Inventory is one indicator of whether or not a market is a seller’s market or a buyer’s one. The US housing market has had 1.23 million property listings as of January 2018. This is 8% lower than last year. Because fewer investment properties are available on the market, a real estate investor selling an investment property has more negotiating power than one buying an investment property.
Let’s take a look at another indicator, days on the market! The amount of days a property stays on the market shows a high demand for housing. In the US housing market, as of January 2018, the average days that a property is on the market is 89 days. This is 7% lower than that of 2017. The decrease in the number of days a property is on the market shows a high demand for housing and rental properties.
Lastly, the median property price is another indicator of whether a market is a buyer’s market or not. In January 2018, the median house price was $269,500, 8% higher than that of 2017. The increase in median house price can be contributed to two factors: a stronger demand for housing (given that properties stay less on the market this year than last year) and a shortage of homes available.
The aforementioned numbers all point to a seller’s market for the US housing market. Real estate investors selling investment properties are at an advantage amidst low interest rates, short inventory, rising median house prices, and fewer days on the market.
For Property Buyers: What Factors Should You Consider When Searching for a Buyer’s Market?
If you are looking for a buyer’s market in the US real estate market, then you must be a real estate investor who is keen on buying investment properties. Here’s what you need to consider when searching for a buyer’s market:
Seasonality: Because the real estate market goes up and down depending on the season, picking the right season can save you a lot of money. Usually, there are a lot more homes for sale in the summer months of June through August than any other time. That being said, the market is typically a seller’s market in the winter but a buyer’s market in the summer. So if you are looking to buy an investment property, do so in the summer. Of course, this can differ from one real estate market to another.
Job Growth and Growing Industries: An area with a lot of jobs available and growing industries will often be a seller’s market. The more jobs, the higher the demand for real estate, thus the higher the selling power.
Inventory: One important factor to search for is inventory. If inventory is low, then the market is most likely a seller’s market. Try to look for a location where inventory is high (or at least higher than the national average). The more homes for sale available, the stronger the purchasing power of home buyers.
While the aforementioned factors help you determine if a market is a buyer’s market, you ought to consider and exhaust all factors that could contribute to a market being a buyer’s market. These include mortgage and interest rates, construction efforts, and price-to-rent ratio.
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For Sellers: How to Make Profit in a Buyer’s Market
Are you trying to sell an investment property in a buyer’s market? Do not worry, even in a buyer’s market, you can still earn a profit selling investment properties. Here’s what you need to do in order to derive a high return on investment:
- Hire a quality real estate agent, broker, or realtor
- Invest in marketing efforts to promote your investments
- Consider minor renovations
- Declutter the property you’re trying to market
Distinguishing between a seller’s market and a buyer’s market becomes pith when investing in real estate. A market with low inventory and demand exceeding supply makes for a great market for sellers. While a market with high inventory and supply exceeding demand is ideal for property investment buyers. Make sure to exhaust all factors that contribute to the market being a buyer’s market before you consider real estate investing. For more information on the US housing market, visit Mashvisor.