What Is A SELLER'S MARKET In Real Estate?

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.

This graph measures the percentage of listed homes that sold each month. In a balanced market, we would expect 1/6th of the homes to sell each month. When we apply the seasonal effects to the market, we expect about 4 months per year to have higher sales figures, four at normal levels, and then four months will be below average.

Instead, the huge buyer’s market that developed in 2006 resulted in a lower percentage of homes selling each month for nearly ten full years.

As a buyer, you could take your time and examine plenty of homes, knowing that there were far more sellers than buyers in the market.

But now that we are in a seller’s market, conditions are completely opposite for buyers. If you don’t jump on a good house right as it hits the market, you’ll lose it to another buyer.

There are far more buyers than sellers in today’s market. Homebuyers need to be prepared to move like lightning when they discover a good listing because it is highly likely other buyers are discovering it too.

The seller’s market conditions make it a difficult time to be a buyer, so make sure you have the best help you can get.

The Local Nature Of The Housing Market

Finally, we’ll take a quick look at the raw numbers for the market.

Remember, a measure of around 6 is a balanced market, while a lower number is a seller’s market and a higher number is a buyer’s market. I’ve identified sellers’ markets in red, balanced market conditions in green, and buyer’s market conditions in orange.

And that is what so is interesting as we have all three markets happening at once.

Overall, we see a seller’s market in all four quadrants of Leon County. Overall, homes priced under $400K are in a seller’s market, homes priced $400K to $550K are at equilibrium, and homes priced above $550K remain in a buyer’s market.

Seeing the data like this should help you appreciate that the market for your home, or the one that you want to buy, is far more local than merely county level or even quadrant level.

You have to analyze the specific neighborhoods around you to determine the market conditions for your home. A good picture of this can be seen in the $400K to $450K price range.

We see a balanced market overall, yet there is no quadrant where the market is balanced.

Northeast Tallahassee is in a seller’s market, Northwest Tallahassee is in a buyer’s market. Southeast Tallahassee is in a seller’s market, and Southwest Tallahassee has not seen any sales in this price range.

So whether you are buying or selling a home, make sure you get briefed on the current market conditions specific to the home you want to sell or buy. It will make a huge difference in how you should approach the market.

So do you have a good understanding of what makes a seller’s market? I sure hope so. If you can think of something else I should have covered, please address it in the comments section below. If you got good information from this article, please take a moment to hit the Facebook “Like” button at the top of this post.