How to Tell if it’s a Buyer’s or Seller’s Market – Video
Kathy Fettke: Seller’s market versus buyer’s market. So many people are confused about the difference and this is imperative. It’s part of understanding market cycles that 80% of the population gets wrong over and over again, without learning from their mistakes. That won’t be you, because we’re going to talk about it now.
A seller’s market. What is that? Is it a time to buy or is it time to sell? When I’m at events, I hear both. I hear 50% of the room say, “It’s time to buy,” and 50% saying, “It’s time to sell.” A seller’s market means it’s time to sell. The seller has the power in a seller’s market, because there’s limited inventory. And, because there’s limited inventory, there are bidding wars. People are afraid that there’s not going to be enough property out there ever and so they just start clamoring for it. Prices go up and when prices go up, people think, “Oh my gosh, I’m going to get priced out” and they jump in. In this kind of market, cash flows decline as prices go up. Properties can be sold in terrible condition because there are so few of them.
People will just take what they can get. That’s why I’m sitting outside still waiting for a renovation on our home. This is how bubbles form.
Now, when prices start to go up, builders get excited because they can make profits and they start to build as much as they can. Often, that leads to overbuilding. That overbuilding will happen as prices hit a peak in our past affordability. We have to keep our eye on affordability and overbuilding because when those two come together, guess what we have? A buyer’s market. Prices decline and the buyer then has the power.
We have high inventory levels because people are afraid of real estate. They’re seeing prices decline and they don’t know when that’s going to end. With few offers, again, people can go in and negotiate, and because they can negotiate, they get their offers accepted and prices continue to decline. It just feeds on itself. Cash flow in a buyer’s market is high and sellers have to fix up their properties to get them to sell. It is a fantastic time to be a buyer.
Now, what happens is builders exit because prices are going down and guess what? Our population is growing. Not in all cities. You have to be careful in cities where that’s not happening. But, population is growing, in most major metros. If it’s growing and builders stop, eventually you run out of inventory. The smart money goes in and says, “Wow, look at all these buying opportunities,” like the hedge funds when they came in and just bought, bought, bought, and investors, like you and me, that were in there buying during the buyer’s market.
All the good stuff gets bought, prices start to go up, and the rest of the world comes in and they start buying and buying and the frenzy starts and off we go to another market cycle.