When Does a Seller’s Market Turn into a Buyer’s Market?
When it comes to real estate, one of the most common questions people have is, “When is it the right time to buy or sell a home?”
Often, the right time to buy or sell has less to do with market conditions and more to do with your family’s needs. But if you want to get the best deal in your transaction, it pays to keep an eye on the market.
The housing market is affected by several factors. For example, there are certain times of the year when it’s usually more opportunistic to buy, and there are times when it’s better to sell. Typically, Spring is the best time to sell a home due to high demand, while winter is the best time to buy due to lower prices and lower demand.
A global pandemic, interest rates, taxes, economic stimulus, and even the availability of building materials all impact the real estate market.
But supply and demand, in general, play the most significant role. If you’re thinking about buying a home, here’s what you need to know about how a seller’s market might transition into a buyer’s market.
Conditions for a Seller’s Market
A seller’s market is usually characterized by excess demand and low supply. Put simply, if a lot of people are looking to buy a home in a particular area but there aren’t many houses available, you can expect prices to go up because sellers know they can get top dollar for their properties.
The most recent example of this in Massachusetts was just this past year.
During the COVID-19 pandemic, people living in Boston and other Massachusetts cities found themselves working from home. To reduce their monthly rent or mortgage payments and get away from high population areas, they bought houses outside of the city. There was no longer a need for them to live in or near the city because they didn’t have to commute to work.
As a result, more single-family homes were sold in the state last year than in any other year since 2004. Home prices had been growing by 2% to 5% each year up until then. But by the end of 2020, prices had risen by 11.4%, a significant increase.
This was a trend that occurred in other markets across the country as well. Arguably, the Massachusetts housing market in 2021 is a seller’s market. But it won’t always be that way.
Conditions for a Buyer’s Market
A buyer’s market is when purchasers have an advantage over sellers in price negotiations. This most often occurs when there is an increase in the supply of goods and a decrease in demand for them.
The same conditions can occur in the housing market. Because fewer people are trying to buy a home, some sellers are more willing to settle for lower prices instead of waiting until more offers arrive. If real estate is abundant on the market and few people are buying, this can drive prices down even further.
How a Seller’s Market Turns into a Buyer’s Market
The housing market usually operates in cycles based on supply and demand.
When demand is high, there is more incentive for developers and investors to build and renovate houses because they know they can make more sales. This expands the supply of homes on the market.
Eventually, the demand for new homes is mostly met, and demand begins to slow down. This leads to an abundance of empty homes that don’t have buyers—an abundance in supply.
Once that happens, there is less incentive to build new homes. The prices on existing homes begin to fall so that developers and investors can make back the money they spent building, acquiring, and renovating homes.
This is generally how a seller’s market turns into a buyer’s market.
Knowing When It’s the Right Time to Buy
Other factors can affect this cycle. For example, high-interest rates can make mortgages less attractive to buyers, slowing down demand, while low-interest rates make taking out a mortgage less expensive and more attractive. Economic growth can lead to both higher demand and a higher supply of houses because buyers have more money to work with and investors are flush with cash from economic activity.
You can even have a seller’s market in one part of the state and a buyer’s market in another. Neighborhoods that have several new or renovated homes might attract an influx of buyers, creating a seller’s market. Meanwhile, neighborhoods that have emptied due to a loss of job opportunities might have an abundance of cheap real estate, creating a potential buyer’s market.
Of course, the most important factor you need to consider when buying a home is the needs of you and your family. It’s beneficial to look for great buying opportunities, but the price is just one aspect of the home buying experience you need to weigh against other needs, like location, nearby schools, amenities, and more.
If you’d like to learn more about the housing market in Massachusetts, don’t hesitate to contact us at GoldCoast Mortgage.