The buying and selling of properties is often directly impacted by real estate trends and seasons. For example, during the summer months (June – August) an abundance of homes are usually added to the market. This can create a vibrant market, presenting homebuyers with many options. The opposite usually takes place during the winter. This is the typical scenario, but the truth is that various factors, such as the financial meltdowns of the past, the rate at which homes are being built, and the area can impact the housing market. How can you determine the state of the market at any given time?
The terms “buyer’s market” and “seller’s market” are pretty straight forward with regards to the basic meanings but do entail certain technicalities that makes for invaluable knowledge when buying or selling a home. While we’ll touch on both, our focus will be centered on the seller’s market.
What is a Seller’s Market?
The real estate market, like any other, is driven by a supply and demand. When demand exceeds supply it creates a seller’s market and is favorable for sellers. This can happen when there are more buyers than homes available on the market. In this scenario homes are a scarce commodity which could see multiple buyers vying for one home. This level of interest could lead to a bidding war which sees the price of a single home being driven upwards with every bid.
In a seller’s market, home owners can reject otherwise great offers and hold off on selling without fearing the consequences of not closing on a good deal even if it’s significantly higher than their listing price. Holding out causes the price of the home to rise even higher. Periods such as this is an excellent time for home owners to sell. It gives them a great advantage
Poor economic conditions often signal a buyer’s market while good economic conditions like an abundance of jobs and robust industries are favorable signals of a seller’s market. It is important to emphasize here that the advantage of a seller’s market lies with sellers, not buyers. For example, buyers who try to bargain for a lower price than that of the highest bid are likely to lose out. In the same breath, making the highest bid does not guarantee a buyer the sale of the house either as the seller can bypass him if another buyer puts in a higher bid. The competition will always be stiffer if several buyers are interested in the same property. If you are a seller, this is the ideal time for putting your property on the market.
Renters also enjoy lucrative business during a seller’s market period as potential buyers will often need to keep renting until their finances improve so they can compete with other buyers. This spinoff for renters is often so favorable that seller’s market is also referred to as a renter’s market.
What Does Low Inventory Mean?
Garnering information on the number of homes for sale in an area (checking inventory) is another a proven method for determining whether it’s a buyer’s market or seller’s market. A low inventory is typical of a seller’s market.
Earlier we pointed out that the buying and selling activities within the housing market are seasonal. This does not guarantee that every summer will be a seller’s market and every winter will be a buyer’s market. Other factors may come into play that can impact the market at any given time.
Let’s take for example a housing market that was hit by the 2007 – 2009 Recession. That event was preceded by the housing bubble. The level of saturation that the area housing market experienced due the slew of new build projects resulted in a buyer’s market where the supply was far greater than the demand. Contractors were stuck with homes that simply weren’t moving which meant no return on investment (ROI). The Recession further complicated the situation. Many new build projects and subdivision phases were abandoned as contractors tried to cut their losses.
The lessons learned from that housing bubble and period of financial meltdown saw contractors growing that much wiser. New build projects in the area are now executed at a slower rate. That coupled with the small number of owned homes up for sale make it a seller’s market.
Reports from many real estate companies indicate that traffic to their websites increase from as early as the beginning of the year. March to June is usually the peak “buying season” but the stiff competition has seen many buyers trying to get ahead of the game.
Reports from real estate agents have also indicated that they are seeing an increase in inquiries in the first quarter. This is usually a slow period for home sales. The rise in the number of potential buyers is not being matched by the number of available homes on the market. That number has remained the same. This discrepancy and shortage of homes has sparked penitential home buyers to try some unconventional methods of finding homes. This includes real estate agents writing blind offers to homeowners on the buyer’s behalf.
Does Tight Inventory Favor Sellers?
The long and short answer to whether tight inventory favor sellers is – YES. Several things can disrupt and cause the closing of the sales agreement between a homeowner and potential buyer to fall through. Even as the parties negotiate and get through the process of the buyer making a written offer, things can take an unfavorable turn for the buyer before the key changes hands. This often happens when buyers try to push for multiple concessions such as requesting that the seller address certain maintenance issues in the home like fixing things, making adjustments to the exterior or requesting that the certain appliances and fixtures come with the house.
In such a tight seller’s market, home sellers hold all the advantage and they set the terms. The days when potential buyers were able to request multiple contingencies before signing off on the close are in the past. Whether the request seems like justifiable due diligence by the seller for that asking price, they can simply walk away from the deal because they know there are other buyers in the waiting. Home owners who are selling and their homes are heavily sought after, not the other way around. Buyers sometimes get to the close and figure they now have some level of advantage and can therefore make certain requests such as having full structural and cosmetic repairs done, have work done on the landscaping and fences, and have a new driveway installed or exterior lighting updating. Unfortunately, those requests could see the sales agreement coming to an end.
Tight markets place sellers are in a position of strength. The bidding wars that these markets generate basically makes asking prices null and void when it comes to the sales offers that home sellers receive. They can afford to be extremely choosey even when their property is not at its best before listing.
Can “Buyers Panic” Lead to Fast Sales?
The competition among buyers is so intense that many fear losing out on a deal that they are so close to signing off on. “Buyers panic” can and often leads to fast sales. Many are often willing to make major concessions to ensure they get the house and that the sale doesn’t fall through. This includes forgoing repair requests or waiving appraisal contingencies.
Certainly, the advantages of a seller market to the seller even in a high demand area does not mean that every house will find a buyer. Some houses are simply not worth the big bucks and buyers will have no problem walking away. Desperation does not drive the concept of value for money out the door. Things are different for a house that catches the attention of several buyers and generates a bidding war.
We must note here that sellers are still required to make disclosure on the condition and history of the home, but do not have to correct some of these issues before listing. For a house that is heavily in demand, buyers may choose to overlook minor flaws that were revealed during a home inspection.
Can Low Interest Cause a Seller’s Market?
What is good for buyers is usually good for sellers. In 2017, interest rates for well-qualified buyers stood at a little over 4 percent and was predicted to rise gradually throughout 2018, eventually getting to over 5 percent in 2019. That prediction saw buyers racing to secure their home loans. This drove of buyers on the market seeking to purchase is good news for buyers. Another spinoff for sellers would now cashing in on the low interest rate for their own home purchase before the increase takes effect.
Low interest rates and property taxes means that home buyers can get themselves larger properties than they may have imagined. Selling now and getting a bigger home would be a good option for sellers who wish to have a bigger home. On the other hand, the 2017 adjustments to Tax Cuts and Jobs Act that comes into effect this year means that home owners whose home mortgage interest rates are presently higher than $750,000 of their home debt and their property taxes deductible higher than $10,000 will be feeling the pinch as these are now the maximum deductibles. Selling to avoid higher taxes in the future is also a reason for some owners to sell.
A New Set of Buyers Enters the Market
A new crop of buyers has emerged over the last several years. This is because of favorable factors in the form of lower but stable mortgage rates and relaxed home loan requirements. As was mentioned earlier, the prediction of interest rates rising gradually from just a little over 4 percent in 2017 to above 5 percent in 2019 sent those who wish to own a home scrambling to secure their financial loan before the increases came into effect.
The droves of first time new home owners on the market has increased. Their level of eagerness and inexperience in owning a home can work in favor of sellers as they may choose to forego and overlook certain aspects of the sales to ensure they secure their first house. Even with stable mortgage rates and relaxed home loan requirements going in their favor, the market remains rather tight for potential home buyers in some areas where there is a small inventory and home values are increasing. However, the increased competition is good news for sellers.