Real Estate Market Buyer VS Real Estate Market Seller
It's more than just prices
Usually when a person wants to sell or buy a property their most usual motivations usually do not lead them to stop and assess the state of the real estate market.
This is because most people think of their home as a place to live. as a place to live and not as an investment. In fact, a property is an investment.
Like any investment, there are good and bad times to sell. When it is a bad time to sell, it is usually a good time to buy. This is why you will hear terms like "buyer's market" or "seller's market", in English it would be Buyer Market or Seller Market.
Another way to refer to these trends is known as measuring market temperature - a buyer's market is "cold" and a seller's market is "hot".
Here you will learn how to measure the temperature of the market and what to look for to determine whether it is a buyer's market or a seller's market.
Buyer's market = 6 or more months of stock
Seller's market = less than 3 months in stock
Market neutral = 3-6 months of stock
What is inventory, it is a quality measure of the turnover of purchases between sellers and buyers. The inventory ratio is a simple account, it equals: Number of Homes for Sale divided Number of Monthly Sales, i.e. it is a measure expressed in months. The equilibrium point of the market is 6 Months, that is, if the stock of houses for sale is sufficient to cover less than 6 months we have a favorable market for sellers, if the stock of houses is superior to 6 months we will have a favorable market for buyers.
To exemplify how this indicator can help us perceive a housing crisis or even a housing bubble in the chart below it will be possible to see the stock of houses in the United States during the years of the housing recession and the stock of houses in the last 4 years.
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What is the difference between the buyer's and seller's real estate market?
|Buyer's market||Seller Market||Neutral Market|
|High Residential Inventory||Low Residential Inventory||The stock is normal compared to previous months/years|
|The prices of houses sold before are higher than the prices of the houses advertised.||The prices of the houses advertised are higher than the prices of the houses sold before.||The prices of previously sold houses are close to the prices of the advertised houses.|
|Time the houses have been on the market for months or more||Houses are sold in days or weeks||The houses are sold in 30 - 45 days on average|
When there are more homes available for sale than there are buyers to buy them, those buyers are enjoying a cold market. Buyers have more homes to choose from, which increases the chances that a buyer will find the perfect home. When they find the perfect house, they will have less competition for it, which can help them avoid a bidding war.
On the other hand, the sellers' market - or real estate market "hot" - is the best financial market to sell to. Why? Because there are more buyers than there are houses available for purchase.
If your market is too hot, you can require buyers to waive appraisals and inspections, within reason. It is always a good idea to allow the buyer to do a home inspection.
For you to understand the American market it is very common that before the purchase is executed a professional appraiser goes to the house (most often hired by the bank that will finance the house) to validate if the selling price is "fair".
Comment: Even in the most heated markets, there are legal issues to be aware of before selling a house too quickly. For example, without waiving the right in writing, federal law says that you must give the buyer 10 days to inspect if the house was painted with a paint that has lead pigments (for example).
In a cold real estate market, serious sellers are usually willing to negotiate. This means that you can probably buy a house for less than the list price, and the seller may be willing to pay some or all of your closing costs, called in the United States closing costs, the costs that are paid at the notary's office when the deed is signed.
It is an easier and more relaxed experience for buyers. When fewer buyers are buying homes, the closing numbers are also lower. Overall, the buyer's market will experience a decline in average sales prices.
In the seller real estate market, serious buyers are usually willing to pay more than the list price. This means you can probably sell your home quickly and possibly for more than you asked for. More buyers are buying homes, which will result in higher closing sale numbers and an increase in average sale prices in general.
For comparison purposes, in a neutral market, which favors neither buyer nor seller, the prices of homes sold are close to the prices of homes advertised. Sales numbers will have stabilized. And the average sales prices over a period of time are level.
Time on the market
The average time it takes for a house to sell, or the "days on market" (DOM) is a useful way to assess whether a market is hot or cold at a given time.
In a buyer's market, houses have larger DOMs. You may notice that "For Sale" signs remain longer and a more ubiquitous real estate advertising presence on lawns, billboards, and street benches.
In the seller's market, you may notice that real estate ads are disappearing and The "on sale" signs are only posted a few days before a "pending sale" or "sold" sign is attached.
NOTE: The average time a house stays on the market under neutral conditions is about 30 to 45 days. It is worth emphasizing that this logic is based on a correctly priced house. Even in a very hot market in favor of the seller, the seller does not usually reward those who advertise their house above market. The buyer may decide to pay more, but his motivation to visit the house is lower when the listing is already above market.
Neutral real estate markets are balanced. Typically, interest rates are affordable and the number of buyers and sellers in the market is equalized. The balance does not tip in any direction, which means that the market is normal without experiencing volatile swings.
For some reason, we have not experienced neutral markets in most metropolitan areas for several decades. However, by the mid-20th century, neutral markets were more common.
Calculating 'Months of Stock
While not the only metric used to assess whether it is a seller's market or a buyer's market, a key term you will hear repeatedly is "months of inventory," we have already mentioned this indicator at the beginning of our text. This refers to a hypothetical scenario in which no new homes become available for sale.
If this were to happen, and buyers could choose only from homes that are already on the market, "months of inventory" is how many months it would take to buy all the homes on the market. Calculating this metric is not difficult when you have the data:
- Find the total number of active listings on the market in the past month.
- Find the total number of transactions sold or closed in the past month.
- Divide the total number of listings by the total number of sales, which results in the number of months of stock remaining.
Here is an example: let's say there were 8,722 listings available last month. In that period, 1,021 sales were closed. That gives us about 8.5 months of inventory, making this a buyer's market.
NOTE: Six "stock months" are considered neutral. More than that, it is a buyers' market (more stock means more options for buyers and less competition). Anything less, and it becomes a sellers' market.
Are you in doubt?
Now that we have explained to you that all signs show that we are not in a real estate bubble, you can now consider investing in vacation homes in orlando. To take advantage of all the tips we have brought to you and go even deeper, you can talk directly to our relationship agents. They are always happy to talk to you with any questions you may have about investing in Florida.
In this text we approached the theme the behavior of the real estate market during recessions because it is interesting for those looking to invest in Florida. If you want to read more content like the one we brought in this article, just stay tuned here on our blog.
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