Buyer’s Market & Seller’s Market – What Does It Mean?

This is good to know for agents, buyers, sellers, and investors. And anyone else who breathes air.

As a Realtor who’s been practicing for nearly ten years, I have probably heard it a thousand times: “Oh, well, we’re in a buyer’s market” or “We’re in a seller’s market.”

So which one is correct? Well, both. Let me explain.

The real estate market is very LOCAL. How local? Extremely. You have to take it further than trying to evaluate the market on a state level, on a city level, even on a neighborhood or subdivision level.

So what makes a seller’s market? This is when the supply of homes is low, and the demand for homes is above-average. It’s actually defined as being when we go for six months having less than a six month supply of homes. A buyer’s market is when the supply of homes is high, and the demand is low. So why does that matter? It’s basic supply/demand theory. You have a lot of people selling homes, but only a couple of people who want to buy, so the many sellers are generally motivated to negotiate more to attract those couple of buyers, since they want/need to sell.

Okay, now for an example of just how close you have to look at the specific area in which you want to buy, in order to determine what kind of market it is. I live in the New Orleans Metro area, and it’s generally a seller’s market here. However, because of the Biggert-Waters Flood Insurance Reform Act, there has been the potential for enormous flood insurance rate hikes. That’s caused many people to stop buying in areas that are in high-risk flood zones (anything other than flood zones C, B, or X) because they don’t want to get hit with enormous rate hikes later this year. In one neighborhood, the number of homes for sale peaked at 58, a record high. That subdivision is in a buyer’s market, while subdivisions nearby that are not in a flood zone, are generally experiencing a seller’s market.

Let’s keep going and zoom in just a little closer. There’s one subdivision I’m aware of that has some of the most expensive homes in the city. It’s generally a buyer’s market, because there just aren’t that many people who can afford that much house right now. HOWEVER, there is on street in there that happens to be the main boulevard, where homes rarely come up for sale. When one does, it’s snatched up almost immediately. So the rest of the subdivision can be in something of a buyer’s market, while the main street has it’s own little seller’s market happening. Must be nice for those folks! The same thing might be seen in subdivisions where one street is on the lake or other, similar situations. In the same breath, it’s important to note that you might see a buyer’s market on a street where it’s the only street that backs up to soccer fields, or a highway, etc.

So what’s the point of all this? Take the news reports on the national real estate market with a grain of salt. It’s sort of like saying, “It’s sunny in the U.S. today.” Well, sure, in Detroit it’s sunny, but in New Orleans, it’s raining. Look closely when buying or renting. Have your agent closely examine the comparable sales and determine if there’s anything that may affect the local market where you’re buying one way or the other, and act accordingly.

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