Simply put, a buyer’s market is basically one that favors buyers. While this isn’t exactly rocket science, there’s a little more that goes into officially identifying a buyer’s market.
If you’re a homebuyer sitting on the sidelines waiting for the market to shift in your favor, here are some tell-tale signs things might just start to be going your way.
1. Inventory of Listings Are High
A buyer’s market can be identified with the simple law of supply and demand: when there are more people looking to sell their homes compared to the number of people looking to buy homes, you’re most likely smack dab in the middle of a buyer’s market.
With more homes for sale compared to the number of buyers actively seeking properties, buyers have the definite advantage. In this type of market, sellers could be in a position to have to accept a lower price than they may have initially wanted, and may have to take extra steps to attract buyers. This is the situation that buyers ideally want to be in, because they can most likely snag a deal.
Realtors use a handy little math equation to help them more closely define a buyer’s market: it’s known as the Sales-to-Listings ratio, and it measures the balance between demand and supply. Using this tool, a buyer’s market would be determined if the ratio is less than 7 sales for every 20 listings.
2. Over Six Months of Housing Inventory on the Market
Real estate professionals use the phrase “months of supply” to determine the amount of inventory of properties for sale on the market. The months of supply is determined by the amount of time that it would take for all of today’s inventory to sell if all of it sold at the current rate without any new inventory being added to the market.
Sound confusing? It’s not. It’s an easy calculation: the number of properties currently for sale is divided by the average number of properties sold each month.
To illustrate, let’s say that 150 homes sold over the past 12 months in a particular community. When dividing 150 by 12 months, we get an average of 12.5 homes per month. In order to come up with the months of supply, the current supply of homes will need to be divided by 12.5.
If the current supply in this sample neighborhood is 95, the answer would be 7.2 months of supply.
Six months of supply is the criteria for a balanced market: any more than 6 months of supply points to a buyer’s market and leads to lower prices, while any less favors sellers because there are less options for buyers.
3. Current Listing Prices Are Lower Than Previous Comparable Sale Prices
Professional real estate agents who represent buyers will typically pull a report on recently sold comparable homes in the neighborhood their clients are looking in. These reports will show the actual prices that homes sold for, which helps buyers identify an acceptable price to offer on a home that’s currently for sale.
If the sold prices on these reports are higher than the asking prices on current listings, this points to the probability that sellers are having trouble finding buyers at higher price points. If this is the going trend, you’re most likely in a buyer’s market, in which you can expect to pay less than the listing price for a home.
4. Closed Sale Numbers Are Low
In a buyer’s markets, fewer numbers of purchasers will lead to fewer sales, which can skew median prices for properties. If there are a lot less people looking around to buy a home compared to the vast number of sellers longing for an offer to come in on their listings, the number of actual closed sales will inevitably fall. If you notice this trend, and are in the market to buy, consider yourself in the driver’s seat at the negotiating table.
5. Median Sale Prices Are Falling
Homebuyers who have been patient and waited around for better deals are rewarded when sellers start dropping their listing prices in order to meet buyers’ expectations. A slowdown in home price growth is a tell-tale sign of a market trend shifting from a seller’s to a buyer’s market. With sale prices flattening out and dipping, a buyer’s market is almost certainly in the works.
Paying close attention to the real estate market activity for a few months can help you pinpoint the type of market you’re currently in. It definitely helps to have a professional real estate agent crunch the numbers for you to really make an accurate conclusion about whether or not a buyer’s market is emerging, or has already emerged. One thing is for certain: when there are more sellers who need to sell compared to buyers who have to buy, you can bank on having the upper hand.