What’s the Difference Between a Buyer’s Market and a Seller’s Market?

by Reve | Realtors

Buying or selling a home is one of the largest financial decisions you will ever make. Not only are you making plans for where you are going to live for the next several years – or perhaps the rest of your life – but you’re also making an investment decision. You are very likely applying for a mortgage equal to several years’ worth of your annual income. This decision should not be made lightly.

As consumers when we make the decision to purchase a home or list a home for sale, we want to make sure we’re doing it at the most optimal time. So the question becomes, what is a seller’s market vs a buyer’s market? You’ve likely heard these terms before, but are you sure you know what they mean, or more importantly, what they mean for you?

What is the Definition of a Buyer’s Market or a Seller’s Market?

In the housing market, like with all markets, prices rise and fall with supply and demand. This same economic theory applies when buying or selling a home. So what is the definition of a buyer’s market or a seller’s market?

How to Know if It’s a Buyer’s Market

In a buyer’s market, the supply is far greater than the demand. More people are trying to sell homes than trying to buy homes.

How to Know if It’s a Seller’s Market

In a seller’s market, the demand is far greater than the supply. More people are trying to buy homes than trying to sell homes.

A realtor showing a house to a couple

What Is the Effect of a Buyer’s Market?

In a buyer’s market, the number of homes available for sale surpasses the number of potential buyers in the market. This means home sellers need to be extremely competitive, and home prices should be adjusted below market value to attract more buyers. A buyer’s market can be an especially good time for new home buyers to make an offer on their first home because entry-level homes will be at the best prices possible.

What is the Effect of a Seller’s Market?

In a seller’s market, there are fewer homes listed for sale than there are potential buyers, which often causes home prices to go up. This is when you’ll hear a lot of chatter about multiple offers. In multiple offer situations, sellers are typically positioned well enough to pick and choose the most attractive offer. In a seller’s market, homes move quickly with many only on the market for a few days. Additionally, many offers will come in above the asking price because numerous buyers are submitting competitive offers in order to outbid each other.

What Kind of Market Are We In Right Now?

In our market, we’re still experiencing a seller’s market, in which sellers are still in a more favorable position than buyers. Why is this?

For starters, the federal interest rate has been, until very recently, extremely low, so mortgages could be acquired at historic low rates. Because of this, buying power was at an all time high, encouraging a significant number of buyers to jump into the market. In turn, the demand for homes skyrocketed.

Additionally, global supply chain challenges due to the pandemic, government tariffs and international relations have contributed to an already existing housing shortage.

During the height of the crisis, lumber more than tripled in price, making homes even more expensive, and the supply chain stranglehold meant that homes simply couldn’t be completed as quickly as demand required. In many cases, homes were built and ready to move–in but there was a shortage of windows, air conditioners, and kitchen appliances. All of these factors pinched supply, thereby impacting the builder's inability to keep up with demand.

And finally, the pandemic had a negative effect on the labor market, specifically the increase in remote work options, motivated people to move to alternative locations. The migration of workers and home owners ensued.

Altogether interest rates, the supply chain issues, and the migration of workers set the stage for where we are now.

What Will We See in the Near Future? A Seller’s Market or a Buyer’s Market?

While economist’s opinions vary on this topic most (though not all) agree we should not expect a housing market crash - and certainly not of the same scale as the one we suffered in 2008. The 2008 housing crash was the direct result of a housing bubble caused by predatory loans and loose mortgage requirements. In our current market, home buyers are starting to experience a market where inventory is still low, but their buying power has decreased. With this in mind, even if market conditions begin to show a dip in property values, we aren’t set up for another bubble burst.

Most economists agree - the current seller’s market should last for the next 12 to 24 months as the buyers who are still waiting to move are still motivated to buy - as soon as a home comes on the market meeting their needs. The Fed increased interest rates in an attempt to calm inflation, and we have already seen a rise in mortgage rates because of it. But, quite simply, demand for homes hasn’t yet decreased.

Should I Buy a Home Right Now?

This is an excellent question to discuss with your realtor. Many indicators show for both buyers or sellers, market activity and demand will remain the same in the foreseeable future. But there’s also a side effect of inflation. That means as inflation increases, the equity in your home increases with it. So while mortgage rates continue to climb, as home prices climb as well, equity will only blossom.