We often describe housing markets as seller’s markets, buyer’s market, or balanced or normal markets.
Do you know the difference?
Here’s a graphic that briefly describes these different types of markets (courtesy of KeepingCurrentMatters.com, with permission).
The type of market is based on supply and demand, and this influences home pricing, as you no doubt have noticed in our on-going overall seller’s market here in North San Diego County for a number of years now.
A seller’s market occurs when the demand for homes is greater than the supply available. By looking at the number of sales over a period of time, usually 1 – 3 months, we can determine how quickly homes are selling and how many sold in that time frame – the rate of sales. When you compare that to the current active listings you can determine how long the existing supply would last at the current rate of sales.
When the number of months of supply is less than 6 months we call it a seller’s market. In other words, based on the current rate of sales the existing inventory would be all gone in less than 6 months if no more homes are listed. Of course homes continue to get listed, and to sell, but as long as demand outpaces supply we have a market that favors sellers. The seller clearly has the advantage in this type of market.
What does this mean? Well, typically prices go up then, we see more competition for homes, there are often multiple offers on a given home, and it’s not unusual for homes to sell at asking price or better.
A buyer’s market occurs when the demand for homes is less than the existing inventory, as we saw during the recession, and the amount of inventory exceeds 7 months. Prices normally drop then, and there is more negotiation on prices with homes selling below asking price, sometimes substantially.
A normal or stable market occurs when there is a balance between buyer demand and the amount of inventory available.
The thing to be aware of is that although nationally we are in a sellers’ market, local markets can vary significantly – some areas in the US are experiencing a buyer’s market. And you can have all 3 markets in a specific area at the same time. For example the lower end of the market, say under $600,000 here in Oceanside and other nearby communities, may be a strong sellers’ market, while the very high end, the luxury market, is a strong buyer’s market. It can also vary within a community, say Oceanside, and may be different for different market segments – condos versus single family detached homes, 55+ communities versus not – or even vary from neighborhood to neighborhood.
It’s important to understand the local market conditions when you are seeking to buy, or sell, since these conditions impact pricing, the time on the market (DOM or Days on Market), the competition for a given property and so on. There are the kinds of issues I discuss with my buyer and seller clients so they are fully prepared for the market conditions where they wish to buy or sell, and understand what this means for making an offer, or listing a home for sale.
As an example, a number of our local markets – Carlsbad, Oceanside, Vista, San Marcos, Escondido – only have 1 to 3 months of inventory overall, a strong seller’s market.
If I can answer any questions, or assist you with your home purchase or sale here in Carlsbad or elsewhere in North San Diego County, please reach out to me at (760) 840-1360.