Understanding the real estate market may seem intimidating at first but we are here to shed some light on the topic of buyer/seller markets. In the world of real estate, the usual pattern we notice is that when temperatures start to climb in the Spring, buyers and sellers start pushing the real estate market into high gear. Around this time, we start to hear the terms “seller’s market,” “buyer’s market,” or “balanced market” being tossed around, and it’s easy to get a general sense of what they mean: seller’s markets mean conditions are favourable for sellers to get higher prices for their homes, buyer’s markets allow buyers to come in at lower prices, and balanced markets are… balanced. These market labels indicate what’s occurring in terms of housing supply and demand, and they’re actually based on statistical data.
One way of measuring and classifying the market is to look at the ‘sales-to-new-listings’ ratio. This ratio compares the number of sales in a given market to the number of listings going on the market, revealing how “in demand” the houses are in that area and how many qualified buyers are on the hunt. In a balanced market, the ratio is between 40% and 60% (an average of 50%).
If you’re house hunting, you want to be on the right side of this equation. In a buyer’s market, prices are reasonable and there are lots of choices within your budget and financing is simple. In a buyer’s market, the sales-to-new-listings would be fewer than four sales for every ten new listings, which would mean 0 – 40% of homes on the market are selling which can force sellers to be more competitive with their prices and often result in lengthier times on the market.
If you’re selling your home, this is where you want the market to be. In a seller’s market, there is a large number of qualified buyers competing for a small number of homes, allowing sellers to drive up their prices (hence, not a buyer’s market). Imagine a buyer walking into an open house that is well within their budget and in their ideal neighbourhood — and it’s crammed with more than a dozen other couples, with offers already on the table. Seller’s markets can push buyers to make bolder offers with shorter closing dates, few or no conditions, and even cash deals… hello competition! In a seller’s market, the sales-to-listing ratio is generally at 60% or more, which translates to six or more sales for every ten new listings.
Another effective way of measuring market activity is to look at the rate at which homes are selling, or, the number of months of inventory (MOI). MOI indicates how long it would take to completely liquidate current inventories at the current rate of sales activity. According to this measure, a seller’s market occurs when the MOI falls at or below four months, a balanced market falls between four and six months, and a buyer’s market is when the MOI is more than six months.
If you do insist on buying in a seller’s market, here are some helpful tips to keep you on your toes and guide you in the right direction:
- BE PATIENT – It’s likely you won’t be able to buy the first home you fall in love with. But hang in there; a perfect opportunity may be just around the corner.
- COUNT YOUR PENNIES – You’ll probably have to pay quite a bit more than the list price. Keep that in mind when checking out neighbourhoods that you think might be in your price range.
- REMEMBER – a hot market is often determined by the market segment. In some areas, it might be suburban single-family homes that are in demand and in others it could be urban one-bedroom condos.
- ASK – With some inside information from a realtor, you’ll be able to make a smart decision about whether to buy now or to wait it out. You’ll also get insight about where prices are headed in your city, whether homes are selling quickly or the market is soft and just how tight inventory may be.
- RESOURCES – Your agent can provide you with a comparative market analysis so that you can take comfort knowing that any offer you make is competitive and reasonable. These comparable neighbourhood sales show the value of similar houses in the area, either recently sold, currently listed or whose listings have expired.
Knowing your local housing market is a basic first step in getting a home you’ll love — and can afford — without overpaying or missing an opportunity. Even though, there can be varying degrees of supply and demand at play, individual factors, like property developments in the area or plans for improved infrastructure, can affect prices. The insights offered by a real estate professional can ensure that you’re selling for the right price or buying at the best price possible. For more tips on how to avoid overpaying for your home, download my FREE e-book!