Buyer’s or Seller’s Market: A Complete Guide

How Buyers and Sellers Can Get the Most Out of the Housing Market

As you're navigating the homebuying process or looking to sell, you'll likely hear the terms "buyer's market" and "seller's market." Depending on what the housing market looks like when you're going to buy or sell, you may decide to take action or wait. By understanding what determines if the market is in the buyer's or seller's favor, you can make a more confident decision when it comes to your home.

Buyer's vs. Seller's Market At A Glance

When buying or selling a house, you'll want to know who holds the negotiating power to determine if it's a good time to buy or sell. A simple way to remember: A buyer's market benefits buyers while a seller's market benefits sellers. Here's what each looks like:

Real estate professionals use a metric called Months Supply of Inventory (MSI), which indicates how many months it would take to sell all available homes. A buyer's market has more than six months of supply, a balanced market has six months, and a seller's market has less than six months.

What Is a Buyer's Market?

A buyer's market occurs when supply exceeds demand, meaning more homes are available than there are buyers. Price cuts are common, houses tend to spend more time on the market, and sellers often offer buyer incentives. For buyers, it means facing less competition and gaining leverage over sellers.

Signs You're in a Buyer's Market

Buyers can look for signs that the market favors them by driving around a neighborhood or browsing online listings, looking for indicators such as:

• Many "For Sale" signs in a community, especially if you see the same signs week after week.
• Signs or online listings that advertise reduced home prices.
• Multiple open houses for the same property or those that do not attract many potential buyers.
• Houses taken off the market and relisted a few weeks later, especially at a lower price.

Remember, one of your best resources for recognizing a buyer's market is someone in the industry. Real estate agents and mortgage lenders closely monitor market trends, focusing on specific trends. For instance, if many homes are selling for less than the listing price or remaining on the market longer, these experts will recognize it as a buyer's market.

What Is a Seller's Market?

A seller's market is when the demand is higher than the supply of homes—there are more buyers than available homes. As a buyer, you'll compete against more people for the same homes, meaning you may have to act quickly if you find one you love. Houses will often sell above asking with frequent bidding wars. It becomes harder for buyers to negotiate lower sale prices, and sellers can stand firm on concessions and contingencies, such as offering more earnest money or waiving inspection and repair contingencies.

Signs You're in a Seller's Market

You can also look for certain indicators that signal a seller's market. As with a buyer's market, observing your surroundings and online listings can reveal some clues:

• Few "For Sale" signs in a community, especially when these signs disappear quickly.
• Open houses that attract many potential buyers.
• Stories in the local news about high home prices or bidding wars.

Like a buyer's market, a real estate agent or mortgage professional can tell you if the market favors the seller. They'll track how quickly homes sell and whether they sell for more than the listing price.

Housing Market Tips for Homebuyers

Whether it's a buyer's market or a seller's market, homebuyers can achieve their homeownership dreams. Some tips for a smooth process include:

• Get prequalified: Getting prequalified helps you set a homebuying budget and shows the seller your commitment and ability to get a mortgage.
• Build a good budget: You won't just have your mortgage to pay, so remember to budget for closing costs, taxes, insurance, and utilities.
• Define your needs: Decide what you must have in your new home and identify any deal-breakers to make the decision process easier.
• Set up alerts: Some online real estate listings let you set up alerts for when a house first comes on the market or the price changes.

How to Win in a Seller's Market

In a seller's market, homebuyers can do the following to help secure their dream home:

• Act quickly: You may need to tour homes and make offers on the day a home is listed to ensure you get the one you want.
• Make strong offers: You may be able to beat other offers by adding an escalation clause or offering a larger earnest money deposit.
• Cut back on contingencies: If you and your agent agree, you might waive inspections or other requirements.

Make sure you've planned ahead when it comes to your new mortgage, too. Get prequalified or preapproved, and know what type of offer you can make to avoid any delays.

Negotiating the Best Deal in a Buyer's Market

When it comes to a buyer's market, here are some tips homebuyers can consider:

• Take your time: With fewer buyers competing for homes, you can spend more time shopping and won't have to rush to a decision.
• Ask for concessions: A seller may be willing to accept concessions to complete the sale in a slower market, so work with your agent to find a good approach.
• Keep contingencies: As with concessions, a seller may be more willing to accept contingencies, such as appraisals, inspections, or a pending home sale.
• Make a smart offer: Use time to negotiate a better price with your agent's help.

In the event that your offer is accepted quickly and you move to a fast closing, be sure to plan ahead for closing costs to adjust your budget as needed well in advance.

Buyer vs. Seller Markets FAQs

Here are the answers to some of the common questions you may have about buyer's and seller's markets.

How Do Interest Rates Affect Market Conditions?

Interest rates dramatically affect the real estate market. Higher rates mean higher mortgage payments and less affordability. In an environment with higher rates, home sales slow, creating a buyer's market.

How Often Does the Real Estate Market Change?

There isn't a fixed time for either a buyer's or a seller's market. It largely depends on the supply and demand, but interest rates, the strength of the economy, and consumer confidence all affect the markets. It can also depend on the location.

What Is a Balanced or Neutral Market?

A balanced market has matched supply and demand, with the MSI around six months. Real estate professionals also call this a neutral market, neither favoring buyers nor sellers.

Final Thoughts: Buyer's vs. Seller's Markets

When you want to buy or sell a home, understanding the market can help you make the best decisions. To find local market trends, look in the neighborhood where you might want to buy or sell a home. You can also talk to an agent or a mortgage professional. When you're ready to buy, take a look at our mortgage process, and let's get started today.