What Causes A Buyer’s Market vs. A Seller’s Market?
When it comes to real estate, the market is in a constant state of flux. Yes, it may stay in a particular state for a while before shifting, but there’s nearly always some movement, however small it may be. That’s because a multitude of factors determine what’s happening in the market – both on a national level and on a hyper-local level – at any time.
When the market is “hot” (also known as a Seller’s Market), there’s typically one massive driving factor: a lack of inventory. When there isn’t enough inventory, every buyer competes for the same few houses on the market. And this shift can happen rather quickly – at the start of the “buying season” (typically in the spring), if not enough people have decided to list their homes in a particular area, then the lack of inventory could force a Seller’s Market. But the market doesn’t just “cool down” or shift to a Buyer’s Market overnight – it’s a much slower process. That’s because the amount of inventory doesn’t typically just shoot up at a moment’s notice. And once a Seller’s Market takes hold, it starts impacting many other factors that keep things “hot” for a while.
7 Things To Watch To See If The Housing Market Is Cooling
Fewer Bidding Wars
The first thing you’ll notice as a market starts to cool off is the intense bidding wars where 57 different buyers are waiving every contingency and making all cash, way-over listing price offers start to slow down. Sure, there might still be some competitive offers, and houses may still be selling for over list price, but there will be fewer offers on a single property, and the offers will be less over the top.
Longer Time On Market
The next thing you’ll notice is that because the intense bidding wars are calming down, the time on the market is getting longer. At the height of the market, we saw homes barely even make it a single day without a signed offer. Now we’re seeing sellers have to wait a bit – to be honest, homes are still moving very quickly, but it’s not “blink and you’ll miss it” fast.
Lower Initial Listing Prices
To decrease the time spent on the market and compensate for the lack of a bidding war, you’ll also start to see the initial listing prices be slightly lower. When the market is super hot, listing prices can go sky-high overnight, with homes becoming tens – or even hundreds -of thousands of dollars more expensive. As the market cools down, these property values will start to level out.
Prices Are Being Reduced
The longer numbers 1 and 2 (fewer bidding wars and longer time on the market) start down-sliding, the more you’ll see the impact of number 4 – price reductions. After a week or two on the market, a seller that wants to move may reduce the price of their home to be more competitive with buyers’ new expectations of what the home is worth. After all – a home is only worth what the market will bear.
More Overall Listings
So what’s causing all of those initial factors to even happen in the first place? It’s because the inventory is starting to even out. There have been a few times in the last couple of years when the number of homes listed for sale was really low – maybe just a handful throughout a single town. As the market cools and properties last longer without an offer, you’ll start to see more new listings pop up – and stick around. And, of course, the existing listings will continue to stay in the mix, giving buyers just entering the game more options.
Increase In New Builds
If you’re looking for a hint that all of those factors will start coming together soon, there’s one thing you can look around and see – new construction. As you start seeing lots being cleared, foundations being poured, and walls going up, you can bet that as these new construction homes become available for sale, they’re going to slow down the pace of the market quite a bit – especially if it’s a reasonably large development going up (rather than just one or two houses at a time).
Fewer Mortgage Applications
This final clue is different from what most people can see on their own – but it’s a huge predictor of what’s to come. When mortgage applications start slowing down, it means there will be fewer buyers looking at the existing inventory – never mind the new stuff – and that we can expect to see everything else fall into line with lower prices, longer time on the market, etc. Again, this isn’t something that someone who isn’t a mortgage broker would necessarily be privy to, but the team at Wilson Associates has strong relationships with agents at different brokerages who fill us in on these trends as they see them coming.
Ready to talk to an agent to see what type of market we’re in right now? Give the team at Wilson Associates a call, and we’ll walk you through everything you need to know about where the market is right now, where we see it going in the immediate future, and how you can put yourself in the best position whether you’re buying or selling or both!
