You may have heard people reference a “buyer’s market” or a “seller’s market.” Is this a real thing? In a word, yes.
In a seller’s market, increasing demand for homes drives up prices. Here are some of the drivers of demand:
• Economic factors. The local labor market heats up, bringing an inflow of new residents and pushing up home prices before more inventory can build up.
• Decreasing interest rates. Interest rates trending downward improves home affordability, creating more buyer interest, particularly for first-time homebuyers who can afford bigger homes as the cost of money drops.
• Rising interest rates. A short-term spike in interest rates may compel on-the-fence buyers to make a purchase if they believe the upward trend will continue. Buyers want to make a move before their purchasing power (the amount they can borrow) erodes.
• Low inventory. Fewer homes may be on the market because of a lack of new construction. Prices for existing homes may increase when there are fewer units available.
A buyer’s market is characterized by declining home prices and reduced demand. Several factors may affect long-term and short-term buyer demand, including:
• Economic disruption. Major disruptions may include a large employer shutting down operations or laying off its workforce.
• Rising interest rates. The amount a homebuyer can borrow may be lower because the cost of money is higher, thus reducing the total number of potential buyers in the market.
• Decreasing interest rates. A short-term drop in interest rates may give borrowers a temporary edge with more purchasing power before home prices can react to the recent interest rate changes.
• High inventory. A new subdivision may create downward pressure on the prices of older homes nearby, particularly if they lack highly desirable features like modern appliances.
Since the recovery from the Great Recession began in 2012, we have been experiencing a strong seller’s market. As the recovery started, local businesses began hiring new workers who all needed places to live. Few homeowners were leaving, so we have seen a classic supply-and-demand imbalance, which puts sellers in the driver’s seat. Home prices have gone up accordingly.
Within the past six to nine months, buyer demand has lessened just a bit, and a few more sellers are coming out of the woodwork. I would expect a more balanced buyer’s-seller’s market in the coming years.