Whether you are new to real estate or have rich experience in the business, never neglect to study and monitor closely the current state of the housing market. Let’s begin with the basics of theory: what is a buyer’s market and what is a seller’s market and how do we distinguish between the two?
What’s a Buyer’s Market?
A “buyer’s market” – or a cold real estate market – is a market in which conditions favour those willing to buy a property. Even without being an expert on economics, you might have guessed that this happens when more people are trying to sell their homes (or rental properties) than those who are looking for a home (or rental property) to buy. A buyer’s market leaves buyers with a wide range of properties to choose from and little competition to struggle with. Buyer’s market is especially good for first-time home buyers or people just starting with real estate investing as it allows you to buy your dream property at a lower price.
Features of a Buyer’s Market:
- More properties on the market than in past periods
- 6 months or more of inventory on the market
- Listed properties spending more time on the market
- Current listing prices below previous sales prices
- Lower overall closing percentage
- Falling average house prices
- Flourishing real estate ads trying to attract buyers
According to Hometrack UK, the UK CIties House Price Track, London is now officially a “buyer’s market“, with heavy discounting by homeowners desperate to sell their properties tipping the capital into a buyer’s market. The average home in London is now sold at -4% of its original asking price, just +0.5% than 2014. In some parts of the capital, discounting has risen as high as 10%.
The figures suggested a widening gap between house price growth in London, which reached just 1.8 % between December 2016 and December 2017, and the rest of the UK, where growth was 4.4 %.
So, what’s a Seller’s Market?
A seller’s market – or a hot real estate market – is obviously the opposite of a buyer’s market. This is when conditions are in favour of those selling a property. More people are trying to buy a property than those who are willing to sell. Of course, this benefits the few ones who are looking forward to selling their home. Buyers should be ready to pay a higher price than the listed one in order to secure themselves the property they want. It’s good for sellers as they are likely to make a quick sale at a higher-than-expected price.
The features of a Seller’s Market are the reverse of a buyer’s market:
- Fewer properties on the market than in past periods
- 3 months or less of inventory on the market
- Listed properties spending less time on the market
- Current listing prices above previous sales prices
- Higher overall closing percentage
- Rising average house prices
- Less impressive real estate ads
There’s even a third option if it’s neither a buyer’s market nor a seller’s market: a neutral real estate market.
What’s a Neutral Market?
A neutral property market, or a balanced real estate market, is when the prevailing conditions favour neither buyers nor sellers. Generally, it means no major changes in demand, supply, and prices.
Features of a Neutral Market:
- Average number of properties on the market compared to past periods
- 3-6 months of inventory on the market
- Listed properties spending regular time on the market
- Current listing prices similar to previous sales prices
- Stable average house prices
- Regular real estate ads
- A stable number of sellers and buyers
What about the current UK market, discounting by sellers in the UK’s largest regional cities is declining: in Birmingham and Manchester, the average price reduction has fallen from 6% in 2013 to 2.7% last year.
Richard Donnell, insight director at Hometrack, commented: “These results confirm our view that the housing market is following the pattern registered in previous housing cycles with high rates of growth in London over the first half of the cycle being followed by low growth and an acceleration in regional housing markets as prices recover off a low base. We appear to be at this transition period once again.”
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