Real Estate Q&A
What is a buyer’s market vs. a seller’s market? Is this just a figure of speech or is it an actual thing one can define?
In a “seller’s market” increasing demand for property of a certain type or in a specific area drives up prices. Here are some common drivers of demand:
Economic factors – the local labor market heats up, bringing an inflow of new residents and pushing up home prices before sufficient housing inventory can be built.
Interest rates trending downward – improves home affordability, creating more buyer interest, particularly for those buying with financing who can afford a more expensive home as the cost of money goes down.
A short-term spike in interest rates – may compel “on the fence” buyers to make a purchase if they believe the upward trend will continue. Buyers want to make a move before their purchasing power (the amount they can borrow) erodes.
Low inventory – fewer homes on the market because of a lack of new construction or fewer resale homes hitting the market. Prices for existing homes will generally increase when fewer units are available.
A “buyer’s market” is characterized by declining home prices and reduced demand. Several factors may affect long-term and short-term buyer demand, like:
Interest rates trending higher – the amount of money the people can borrow to buy a home is reduced because the cost of money is higher, thus reducing the total number of potential buyers in the market. Home prices drop to meet the level of demand and buyers find better deals.
Short-term drop in interest rates – edge with more purchasing power before home prices can react to the recent interest rate changes.
High inventory – a new subdivision or multiple homes hitting the market around the same time can create downward pressure on prices of all homes nearby, particularly if they lack highly desirable features.
Natural disasters – a recent hurricane or tornado can dramatically affect property values in the locale where those disruptions occurred.
A “stratified market” is one in which supply and demand characteristics differ by price point, in the same area (usually a neighborhood or city). For example, home sales for properties under $3,000,000 in Royal Palm may be brisk (seller’s market) while homes over $8,000,000 may be sluggish (buyer’s market). A classic example of this scenario is seen in major international destination cities such as London, Miami, New York, San Francisco, Toronto, and Vancouver where international investors – looking to park their money in the United States – buy the expensive real estate. At the same time, home sales activity in mid-priced homes in the same area may be entirely different.
If you have questions or suggestions or to submit a potential “Question of the Month,” please email us: AskRo@pinkpalm.com. We would love to hear from you. What did you like about the report? What else would you like to see?
