When you are ready to buy a home, it can be very exciting. Whether it is your first home or you are looking to move up to a larger house or downsize, you may wonder how you can determine your local market. With mortgage rates dropping, many people are curious to know if the market they are interested in will be competitive.
Knowing if you are in a buyer’s or seller’s market helps you determine your strategy when making an offer on a home. If you are in a buyer’s market, that means you will likely be able to negotiate and set more favorable terms and potentially write an offer below the asking price. If the opposite is true and you are in a seller’s market, you may have to think strategically about the price you offer and the terms to capture a seller’s attention.
Inventory Is High
One strong indicator that buyers have the advantage is if the level of inventory in your area is high. Inventory refers to the number of homes for sale. The rule of thumb is that a six-month supply of homes for sale represents a balanced market. This is calculated by determining how long it would take for all homes to leave the market if no new listings were added.
A three-month supply of homes generally means sellers have the upper hand and can command a higher price or will have more offers. If the supply is higher than six months, that means buyers have their pick of homes to choose from. It may also mean sellers are aware of the competition and may be willing to strike a deal.
Days On The Market Are Rising
Inventory doesn’t tell the whole story. You also want to know if new listings are coming on the market or if inventory is rising because the houses for sale aren’t selling.
A companion to inventory is days on the market. Sites like Redfin and Zillow can tell you the overall days on the market for a specific area. This can be a valuable signal. During the pandemic buying surge, homes were transacted in a month or less in some markets; now, it can be over a month. Another thing to note is that days on the market are highly cyclical. Homes will be on the market longer over winter when fewer buyers are looking.
If homes are sitting on the market for longer than 30 days, that can mean several things. Homes may be overpriced, and sellers may have unrealistic expectations of what they can receive for a price. This often happens when a market is changing. The general rule is that there is a six-month lag between a buyer’s perception of a price shift and a seller’s.
Sellers tend to be very focused on what homes sold for near them. If the neighbor’s house sold for a high price six months ago, they may think their home should sell for a similar price, even if the market has gone down. When looking at days on the market, it’s valuable to look not just at the overall market but at specific price tiers. Homes in the starter category tend to move more quickly because of a larger pool of buyers, whereas luxury properties generally take much longer to sell.
If a home you are looking at has been on the market for a long time and the overall days on the market are still low in your area, that may mean something about the individual property is keeping it on the market. Also, remember that days on the market can be manipulated for individual properties. If a property goes off the market and relists, that resets its days on the market.
Price Reductions Are Increasing
If there is a lot of inventory and homes are staying on the market for longer, it signals sellers that they need to take action if they want to sell their property. Sellers can get very attached to the price they wish to receive. Sometimes, they may need a certain price to be able to afford their next home. They may also be looking to receive a return on their investment in improvements and remodeling.
In a buyer’s market, competition has gone from the buyer’s side, where many buyers are competing for the same home, to the seller’s side, where sellers are trying to make their homes more attractive. In a competitive market, sellers may spend more money on updating the home’s curb appeal and using home staging to make the home’s interior look more attractive.
Knowing When It’s Time To Act
While reviewing data online is a great place to start, the best way to know what is happening in the neighborhood you are interested in is to look around. Are you seeing lots of for-sale signs? Is the number of open houses increasing? Are the open houses well attended?
If you are serious about moving, your first step is to ensure you are prepared to buy a home. A mortgage preapproval can be a great place to start. Once you know more about the type of loan you can get and what you want to spend (remember, these are often not the same), it’s time to find a real estate agent. An agent can also tell you what they see in the market and will often see homes before they are listed for sale.
A buyer’s market can be a good opportunity to get a home at an attractive price. As part of your research, you will want to understand the market dynamics behind the uptick in homes for sale, including ensuring a stable local economy. It’s important to make sure that you are buying in a market where you will be happy and where there is also the potential for appreciation on your investment while you own your home.