In real estate, the pendulum of power can swing dramatically between buyers and sellers. Where that pendulum falls can have huge implications for listing prices, offers, and negotiations. But gauging who has the advantage in the push and pull of market factors can be difficult for novice and seasoned homebuyers and sellers alike.
In a buyer’s market, housing supply exceeds demand, giving buyers leverage over sellers. In a seller’s market, demand exceeds housing supply, giving sellers the upper hand.
Understanding if it’s a buyer’s or a seller’s market is crucial to surviving in the real estate world. Knowing how to leverage that power — regardless of where the pendulum lands — can make a difference in a competitive market.
When housing supply exceeds demand, power shifts to buyers in a buyer’s market. Under these conditions, prospective buyers have leverage over sellers because there are more houses for sale than buyers for them. To compete, sellers may have to lower prices, make more seller concessions, or keep their homes on the market for longer than in a neutral or seller’s market.
Buyers have the upper hand in this market. If you’re a house hunter thinking about buying a home, now is an ideal time. Here are some tips for getting ahead:
While buyers have the advantage, sellers can make the most of a buyer’s market by optimizing their home for purchase. Here are some tips to entice buyers:
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In contrast to a buyer’s market, demand exceeds housing supply in a seller’s market, giving sellers more power. Buyers must compete for the low inventory of homes for sale, driving down median days on the market for listings and increasing asking prices and buyer concessions.
In extreme seller’s markets, like the one following the pandemic, cash offers and bidding wars — where buyers compete for a house by increasing their offer — become more common as buyers try to edge out their competition.
Buyers will need to be strategic about how to get ahead of the steep competition for low inventory in this market. These tips can help buyers be prepared to act when the opportunity to buy arises:
Sellers have the upper hand in this market. They can make the most of their competitive advantage by following the advice below:
The housing market is cooling, but 2022 remains a solid seller’s market due to the low inventory of houses available for purchase. In July 2022, existing home sales hit a high of three-months of supply, which is still below the six-month mark that is considered normal levels of supply and demand — keeping the market in favor of sellers.
Experts are forecasting a more balanced market in 2023 with a slight favor to sellers, driven by the following factors:
Freddie Mac forecasts home values to continue to grow throughout 2023, albeit at a slower clip than the pandemic years. Increased home values will motivate homeowners to sell while driving competition.
While the pandemic has driven down the number of homes available for sale, so too has a decades-long housing inventory shortage. While supply levels are trending towards more normal levels in 2023, they are unlikely to satisfy the demand from the millions of buyers who were priced out and have been waiting on the sidelines since the pandemic.
The Federal Reserve has announced its commitment to fighting inflation by raising interest rates. While the Federal Reserve doesn’t dictate mortgage rates directly, their actions have a ripple effect which is reflected in them. Given their pledge to keep raising interest rates, experts estimate that borrowers won’t see another cut in mortgage rates until the end of 2023 at the earliest. These hikes will continue to dampen demand.
There have been rumblings about the possibility of a market crash. However, a market correction in select regions is more likely. In a market correction, overvalued markets gradually reduce to more normalized levels (about 10% less than their peak). Supply and demand level out, and more buyers are able to compete in these red hot markets. If you’ve been looking to buy or sell in one of these areas, it may be worth it to wait until the market normalizes.
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