Buyers vs Sellers Market
The key to timing the real estate market is to understand whether it’s a buyers or sellers market…. While the names may be self-explanatory (ie: you should buy property in a buyers market and sell property in a sellers market), knowing how to spot them can be a little more tricky.
What is a Real Estate Buyers Market?
You can tell it’s a buyer’s market when there are a lot of homes on the market and not many buyers. This typically happens after a booming market busts (ie: 2009-2011). It can also happen if:
- A major employer moves away from the area
- The economy in general is in recession
Buying in a Buyer’s Market
If you are buying in a buyer’s market, be aware that you should have all the power in the negotiations. The seller knows that if they don’t like your offer, you have a ton of options to choose from, 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 won’t sell a property during a buyer’s market, but if you find yourself needing to sell, expect for 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 will directly impact your return on investment.
What is a Sellers Market in Real Estate?
You can tell it’s a seller’s market when there are not many homes for sale, but they seem to be selling really quickly. This is a good indication that the market has low inventory, but a lot of interested buyers.
A seller’s market typically happens after home prices have steadily started to increase for a period of time. A seller’s market can also happen if:
- New businesses move to the area and,
- Housing hasn’t caught up with demand
Selling in a Seller’s Market
If you’re selling property during a seller’s market you’ll have all the power. Since there aren’t very 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 asking price, even if you don’t make any improvements to your property…
Buying in a Seller’s Market
Again, you ideally 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 in order to beat out the competition.
5 Tips For Timing the Real Estate Market
In the following sections, learn tips to better your odds of timing 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’s probably going to 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 be missing 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. During the months between April to the end of August, most cities experience a seller’s market. More people are looking for homes during this time because the kids are out of school, the weather is usually more mild, etc.
On the other hand, from October through March, most cities see a slow down in buyers and sellers. People tend to avoid moving during these months because it’s winter time and perhaps they have a lot going on over the holidays.
Typically, you will be able to find a better deal on a property during these buyers market months. However, there is also less inventory on the market, so you may have limited options. To get a better idea of 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
Take a look at the housing prices in your area over the last 10 years. You should see noticeable market swings about every two or three years.
For example: If home prices on the market 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 broad look into 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 demanded 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., sometimes the time of year is irrelevant because the market is always hot. 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 where the market was up and years where it was mostly flat. There are rare circumstances where home values in larger cities may decline, but it 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 so important to understand trends and recognize timing.
“In the mid-2000’s, 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.”
Conclusion
While it’s impossible to know exactly how a market is going to perform, there are ways to gain a better understanding of how to time the real estate market. Recognize the difference between a buyers vs sellers market. Evaluate current and past market trends in your area. And buy property in a balanced real estate market.
Check out our Top Housing Market Predictions for 2019 to learn more information about what to expect.
