What Is A SELLER'S MARKET In Real Estate?
What is a seller’s market in real estate?
You might have heard that we have a huge seller’s market right now in real estate. Do you know what that means?
This real estate frequently asked question comes up from time to time when somebody asks “how is the market.” They want to know if its a buyer’s market or a seller’s market. Is now a good time to buy a home?
I have prepared this article, including a short video, to demonstrate the conditions that make this a seller’s market, and then we’ll show you the numbers and how we actually are able to determine the number of buyers and sellers in the housing market.
The definition of a seller’s market in real estate is not complicated. It means there are more buyers than sellers in the market. But how do we measure the number of sellers and buyers in the market?
Seller's Market Explanation Video
Supply And Demand Continuously Change
The real estate market is unique in that there is not a dominant party in the market. By way of comparison, in the automotive industry, there are only a handful of producers so they have more control over the supply-side of the market.
In real estate, there are tens of thousands of new home builders in the US, and this decentralization means that there is far less order and control of the production of new homes. Thus, the market has a tendency to over-correct itself.
Home Building Cycle
Homebuilders earn a living by building homes, and financial pressures push them to want to continue building. This lag to respond to market changes means that the cycle changes in real estate are extended and therefore fairly predictable. We know that the market will go from an extreme, to equilibrium, and then to the other extreme, before coming back to a balanced market.
When buyers get very active, perhaps because the local population is growing or mortgage interest rates drop, we often see a decline in the number of homes for sale in the market. The increased demand is not immediately acknowledged by new home builders.
If this continues for a good period of time, local builders begin to take notice and they start building homes at a faster rate. The increased demand during this cycle brings more home builders into action.
They build more homes, sell more homes, and then build even more. Typically, this goes on until we see the demand for homes flatten out, and then fall when the stimulus that had excited buyer demand either goes away or diminishes in value to buyers.
The builders who do not adequately monitor the supply and demand for homes continue to build and the market becomes saturated with new homes. This shift where sellers outnumber buyers is called a buyer’s market.
Because there are so many players involved in the housing market, we tend to see cycles where we go from a seller’s market to a balanced market, and then to a buyer’s market. Some home builders go out of business.
The remaining builders slow the production of new homes until the supply of homes for sale is reduced. This reduction typically runs long enough to take the market to equilibrium, and then back to a seller’s market. And then it all happens again. Does that make sense?
The ebb and flow of the market always have us moving back and forth from a buyer’s market to a seller’s market and back again. So what is a seller’s market?
A seller’s market is one where there are more buyers than sellers, and our current market happens to be the strongest seller’s market I’ve seen in my 30-year career selling homes in Tallahassee.
Answers To Your Frequently Asked Questions
Current Activity Defines Housing Market Conditions
Take a look at this graph of current market conditions.
It shows the supply of homes relative to the current rate of demand so we call it the relative supply of homes. We measure relative supply in “months of supply,” meaning the number of months it would take to consume the current supply of homes for sale.
Here we see the green line shows the number of homes sold each month (that’s the demand) and the red line shows the number of homes for sale each month (that’s the supply). When we divided the demand into the supply, the result gives us the relative supply of homes shown in blue.
Finally, we take the one-year average of the relative supply to remove seasonality and we can see this plotted in yellow. When the market is balanced, we refer to it as market equilibrium.
Most real estate experts consider equilibrium, or a balanced market, as one with 6.0 months of supply of homes for sale. Look at how glutted the market was from 2006 through 2014, where the relative supply of homes peaked at nearly 14 months of supply. We spent very little time at equilibrium and now for the past 6 years, the overall market has favored home sellers.
As I’ve stated emphatically in recent housing market reports, we need more homes. If you have a home you’d like to sell, the market needs you. If you are a home builder, please get busy bringing more homes.
Market Conditions Impact Buyer Choices And Pace Of Action
Let’s take a look at what it is like being a home buyer under differing market conditions.
The Local Nature Of The Housing Market
Video Answers To Your Questions
Video Housing Market Reports
Your Local Expert In Tallahassee
When moving to, in, or from Tallahassee, you will fare better if you work with a local expert. We are here to help. If you have further questions on the Tallahassee real estate market, you can leave a comment below, give us a call at (850) 366-8917, or drop us a note and we'll give you the local information needed to ensure a successful, smooth transaction.
As a local born and raised in Tallahassee with a focus on customer service, I promise you'll find great success when working with Joe Manausa Real Estate, just as have our past customers. You can read thousands of their reviews reported on Google, Facebook and Zillow right here: Real Estate Agent Reviews Tallahassee.
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