The key to timing the real estate market is to understand whether it’s a buyer or seller marker. While the names may be self-explanatory (i.e., buying property in a buyer’s market and selling property in a seller’s market), knowing how to spot them can be a little more tricky. Below, we share five tips so you know exactly how to time the real estate market.

Buyers vs Sellers Market

What is a Real Estate Buyers Market?

You can tell it’s a buyer’s market when there are more homes on the market than buyers. This typically happens after a booming market bust (i.e., 2009-2011). It can also happen if: 

• A major employer moves away from the area
• The economy, in general, is in a recession

Buying in a Buyer’s Market

If you purchase in a buyer’s market, be aware that you’ll have more negotiation power. With more houses on the market, the seller knows that if they don’t like your offer, you have more options, maybe even down the street. If a property owner needs to sell, they will do whatever it takes to secure a deal with you, often below market value. 

Selling in a Buyer’s Market

Ideally, you don’t want to sell a property during a buyer’s market, but if you find yourself needing to sell, expect it to take longer than you think. Also, prepare for the possibility that you may have to accept a lower offer than you’d prefer. 

When you choose to sell a property, your return on investment will be directly impacted. 

What is a Seller’s Market in Real Estate?

You can tell it’s a seller’s market when there are few homes for sale, but they seem to sell quickly. This is a good indication that the market has low inventory and a lot of interested buyers. 

A seller’s market typically happens after home prices have steadily increased for a period of time. A seller’s market can also happen if: 

• New businesses move to the area
• Housing hasn’t caught up with demand

Selling in a Seller’s Market

You’ll have good negotiating power if you’re selling property during a seller’s market. Since there aren’t many homes for sale, and the demand for housing is high, you won’t have to take any low-ball offers. More than likely, you can sell above the asking price, even if you don’t make any improvements to your property.

Buying in a Seller’s Market

Ideally, you won’t buy property during a seller’s market, but if you choose to (for whatever reason), know that the seller has all the power. This means they’ll wait for the very best offer. In other words, you’ll need to make a competitive offer to beat out the competition.

5 Tips For Timing the Real Estate Market

In the following sections, discover how to time the real estate market more accurately. 

1. Buy in a Buyer’s Market & Sell in a Seller’s Market

That’s a simple answer to the question, “When to buy?” or “When to sell?” However, this may not be possible for many real estate investors based on timeframe, financial goals, personal demands, etc. But if there’s any way to hang onto your investment property until the market works more in your favor, it will probably be worth it. This is especially true for those looking to sell a property during a buyer’s market and realize how much ROI they might miss out on.

2. Know the Best Time of Year to Buy or Sell

The time of year you decide to buy or sell a property plays a huge factor in price and buying competition. In the months between April and the end of August, more people are looking for homes because the kids are out of school and the weather is usually more mild.  

Most cities see a slowdown in real estate transactions from October through March. People tend to avoid moving during these months because it’s winter, and more is happening at home during the holiday season.

Typically, you can find a better deal on a property during these buyer’s market months. However, there is usually less inventory on the market, so you may have limited options. To better understand real estate market trends in your area, check out housing prices over the last 10 years.

3. Look at Housing Prices Over the Last 10 Years

Look at your area’s housing prices over the last 10 years. You should see noticeable market swings about every two or three years. 

For example, if home prices are low, it may be a good time to buy. If home prices are high, it may be a good time to sell. It may be a good time to buy for two or three years and then a good time to sell for the next two or three years.  

Evaluating housing trends over the last 10 years will give you a broader perspective on what is happening in your area, when to expect swings in the market, and how to time the real estate market better.

4. Understanding Basic Supply and Demand

According to The Libraries of Economics and Liberty, “The law of supply states that the quantity of a good supplied (i.e., the amount owners or producers offer for sale) rises as the market price rises, and falls as the price falls. Conversely, the law of demand says that the quantity of a good demand falls as the price rises, and vice versa.” 

As such, housing and property prices are controlled by supply and demand in the real estate market. Consider the following real estate trends regarding supply and demand based on location: 

• Bigger cities are more exposed to market fluctuations
• Smaller markets, like the Midwest, are less exposed to market fluctuations in the U.S.
• Randomly located cities may rise while others remain low (so pay attention to market trends in the area you want to buy in)
• Property values will likely go up in an area if a new company moves in, creating an influx of new jobs and people needing a place to live
• Look for markets that have a good balance of supply and demand
• Become an expert in your city’s real estate trends 

5. Big Cities are Hot All Year

In huge cities like New York, San Francisco, Chicago, Los Angeles, Seattle, etc., the time of year is sometimes irrelevant because the market is always active. With rent values continuing to rise in these big cities, it always seems to be a seller’s market. The simple reason for this is that the supply cannot keep up with the demand. 

Long-term trends in big cities should still provide valuable information about years when the market was up and years when it was mostly flat. There are rare circumstances where home values in larger cities may decline, but this would likely be caused by a major event or market change in the area. 

The Importance of Understanding Real Estate Market Cycles

Co-Founder & Co-CEO of RealWealth Kathy Fettke shares in her book, Retire Rich with Rentals a real life example of market cycles. In her example, she explains how market cycles work and why it’s important to understand trends and recognize timing. 

“In the mid-2000s, everyone was buying houses. …This soon became a seller’s market because the inventory of available homes dropped when people bought them up. The public was in a real estate fervor and buyers competing for limited property drove prices up.

Pretty soon, prices were far above affordability levels, but hybrid mortgages made it possible for people to still afford a small but temporary payment. As soon as the payments adjusted and borrowers could no longer afford to pay, we all know what happened next. Millions of people defaulted on their loans. Their properties were foreclosed and put back on the market, creating a huge glut of for-sale inventory.

The bubble burst and many of the overpriced properties dropped in value quickly – as much as 75% in some areas! Those people who were so eager to get into the market just a few years before desperately wanted out. The problem was there were no buyers. Why would no one buy property that was 75% cheaper than it had been a few years earlier?

People were either scared off or left for broke. The headlines screamed of declining home prices on a daily basis. Those who could afford to buy property didn’t want to do it until the values stopped falling and the market stabilized.

This turned into one of the best buyer’s markets in history. With banks desperate to unload properties, a buyer could pick and choose, and make incredible deals. But with the news media churning out terrifying headlines, only savvy investors were buying – and picking up as much as they could.

From 2009-2011, banks were practically giving property away. In places like Detroit and Cleveland, they actually were giving them away, but few people even wanted them for free. Just a few years later, everything changed and it was because of one person. 

In February of 2012, Warren Buffet said on CNBC that he’d buy a few hundred thousand homes if he had a way to manage them. Wall Street listened and hedge funds jumped in to do just that, along with investors from all over the world. It took one famous investor to wake people up that U.S. real estate was on sale and the best deal available.

From 2012 -2014, home prices went up as much as 30% per year in some areas. By the end of 2014, another bubble was forming. In 35 out of 100 markets, prices were already above 2006 bubble prices. But guess what people were doing? You got it. Buying.

My point is that you need to know how to recognize a buyer’s market and a seller’s market.”

Final Thoughts

While knowing exactly how a market will perform is impossible, there are ways to better understand how to time the real estate market. Recognizing the difference between a buyers’ and sellers’ market, evaluating current and past market trends, and buying property in a balanced market all put you in a position to invest successfully.