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In real estate, a buyer's market is when there's a surplus of homes for sale and a shortage of buyer demand. Buyers can leverage buyer's market conditions to their advantage and negotiate lower sale prices—if they know what steps to take. On the other hand, well-prepared sellers may need to offer incentives and perks to come out ahead in a buyer's market.
Here's how to spot a buyer's market, and how it can affect you depending on whether you're looking to purchase a new property or sell your current one.
Understanding a Buyer's Market
A buyer's market in real estate means the supply of homes outweighs demand among buyers. Depending on trends affecting the real estate market (more on those later), buyer's markets can happen on a national level or in localized bubbles. Either way, a buyer's market comes down to supply and demand:
- Boosted supply: More houses go up for sale
- Less demand: Fewer buyers look to purchase a home
When the real estate landscape tips toward a buyer's market, sellers have to compete to secure a sale. Home prices tend to fall, and houses remain on the market for longer. Buyers can land better deals from the abundance of sellers willing to compromise to sell their homes.
Alternatively, in a seller's market, reduced inventory gives buyers less choice, and homes sell fast. Sellers can up their prices and may receive offers above the asking price on their homes. For example, starting in 2020, when interest rates plummeted and remote work flourished after the onset of the pandemic, people flocked to buy homes and housing prices soared.
Buyer's and seller's markets operate in cycles; each will inevitably, eventually give way to the other. The real estate market can move in either direction based on certain economic trends:
Over the past two years, interest rates were historically low, making taking out a mortgage more affordable. Now, interest rates are up—and are expected to keep climbing. Mortgage interest rates are rising with the trend, causing home loans to cost more than they have in a decade.
Buying a home is expensive, but lately, so is everything else. Inflation is another result of supply and demand: Increased demand for a reduced supply of goods pushes prices higher. In spring 2022, inflation hovered around a 40-year high, making daily life pricier. More money for essential spending like gas and groceries can mean less money to buy a house.
While inflation has driven up consumer prices, the workforce hasn't seen enough of a bump in income to adjust to the higher cost of living. Despite wage increases across many industries, raises for most workers are not keeping up with costs of inflation.
Ultimately, these trends combine to scare many buyers off from taking on a new mortgage.
Signs of a Buyer's Market
The market changes over time, and you need to know which market cycle you're operating in to make the most of it. Look for these five signs to identify a buyer's market:
- Increased inventory: More homes are listed for sale, increasing the supply of available housing.
- Slower sales: As demand slows, houses can take longer than the median 34 to 61 days to sell.
- Relisted homes: Along with the longer sale periods, sellers may relist the same property after it's been on the market for a while.
- Lower prices: Listings may go through a few rounds of price cuts and homes sell for below the original asking price.
- Incentives: Sellers may offer tempting incentives to seal the deal, like flexible closing costs or credit to cover renovations.
By contrast, seller's markets are marked by fewer houses for sale and a high number of buyers looking to make a purchase. Buyers may face bidding wars and houses are snatched off the market soon after listing.
Tips for Buying a Home in a Buyer's Market
As a buyer in a buyer's market, you may have the options and leverage to secure your dream home. However, you should still keep a few tips in mind to make the most of the market:
- Negotiate the price. In a buyer's market, you don't necessarily have to rush in with an offer. Negotiate the price down as much as you (reasonably) can, and give the seller space to lower the price on their own.
- Keep negotiating. You can probably ask for seller concessions that would otherwise be out of the question. Consider leveraging your advantage for lower closing costs or credit to cover renovations.
- Cover your credit bases. Before you dive into the real estate market, know how much house you can actually afford. Review your credit score and credit report and understand how much you can afford for a mortgage and down payment. If things don't look great, take time to get your credit in better shape for a mortgage.
- Look to a professional. Real estate agents can be strong assets for your homebuying team to help you identify issues and secure great deals.
- Don't skip the inspection. No matter how beautiful the house looked online or during your sunlit tour, the home inspection is vital. It can reveal deal breakers or grounds to negotiate a better purchase.
Tips for Selling a Home in a Buyer's Market
For sellers facing a buyer's market: Fear not. It may not be the ideal environment for selling your home, but you can still find success. Be sure to:
- Stage your home beautifully. It should be immaculately clean, organized and photo-ready for both tours and online listings (after all, 95% of buyers use online tools to search for a new home, according to a report from the National Association of Realtors).
- Depersonalize your home. Buyers want to imagine themselves living there—which can be difficult if the home is full of another family's photos and knickknacks.
- Consider offering incentives. Incentives are a hallmark of a buyer's market for good reason: They help make sales. Consider what you can compromise to entice buyers. Flexibility is a seller's friend in a buyer's market.
- Set the right price. A competitive price can mean the difference between a sale and a stale listing.
- Hire a real estate agent. Real estate agents aren't a necessity, but they can be an advantage to boost your chances at making a sale. A pro can help with everything from staging to pricing.
The Bottom Line
We may still be in the midst of a seller's market, but real estate might be transitioning back to a buyer's market as people decide to put off house purchases in the current interest rate environment. Right now, there are more homes being built than have been in nearly 50 years. And, according to data from Zillow, housing inventory has already grown 11.6% since February 2022 after a monthslong stretch of decline. Along with this inventory increase, increasing housing prices are starting to stabilize.
Whether you buy or sell, keep an eye on the trends and prepare to face the market with every advantage. With the right tools under your belt, no market is unmanageable.