Table of Contents
Buyer’s Market or Seller’s Market OR Transitioning Market?
In the Frederick real estate market a three-to-six-month supply of homes is normal. Every market is different, so these statistics might not be true for your market. In NW Washington D.C. for instance, four weeks is considered a long time for a home to be on the market.
Whether it’s a buyer’s market or a seller’s market depends on a combination of the inventory of homes on the market and the demand for homes. When there is a large inventory of homes, more than there are buyers, it’s a seller’s market. A buyer then has many more choices and not a lot of competition. The opposite is true of a seller’s market.
Is It a Buyer’s or a Seller’s Market?
A Buyer’s Market: In a real estate market with 7 or more months of inventory we consider the buyer to have more negotiating power. There are more houses on the market and buyer’s have more choices. We usually see depreciation. (from 2007 to 2011)
A Seller’s Market: In a real estate market with 1 to 4 months of inventory we consider the seller to have more negotiating power and we usually see home value appreciation. Buyers have more competition as there are fewer homes on the market. (from 2015 to 2018)
A Balanced Market: In a normal market with 5 to 6 months inventory the conditions are even. In late 2011 and 2014 we’ve seen a balanced real estate market in Frederick Maryland. Now that the demand is up and the inventory is down, we’re seeing the turn to a buyer’s market again.
Calculating Months of Inventory
The number of months of inventory means that if there were no more new listings, it would take X months to sell the homes currently on the market. We also use the term Absorption Rate, and also talk about the number of “Days on the Market”
When we calculate the months of inventory, we usually take the last 3 months into account. We can fairly determine that it will take X number of days to sell a home, on average. These calculations are important, because if we see a home linger on the market for more than the average time, we can assume that the price is too high, or the condition of the home is not good.
A Little Market History
In Frederick Md, a “normal” market has an inventory of about 1200 – 1400 homes to be considered a balanced market. For the 2013 year, we saw a very low inventory, around 600 to 800 homes for most of the year. W saw some appreciation during 2013, about 10-11%. In 2014 the inventory grew to about 1000 – 1100 during most of the year and we saw values increase about 2 – 3%, depending on the neighborhood. In 2015, the inventory grew to an average of 1200 and we’re seeing that inventory gradually tick up to a similar number in 2016. As well, we’re seeing a pent-up demand! [to see current inventory statistics, see our latest entry in the market statistics category]
A Market in Transition
Most of the time we’re seeing the market transition. Just when you get used to a market with low inventory and high demand, then very soon the resulting appreciation changes the dynamics, and you see many more sellers listing their homes…then suddenly the see-saw tips and you are in a buyer’s market. It’s worth mentioning that the term “buyer’s market” and “seller’s market” are usually not very useful at best, and misleading at worst.
All Real Estate is Local…Even Micro-Local
Within your own city, wherever you are, there are differences in the various neighborhoods, communities and zip codes. We often see a “buyer’s market” in one community, and a “seller’s market” in a neighborhood only a few miles away. Local businesses and schools, growth and industry…they all have an affect on the local real estate market. All real estate is local.
- We might see a particular townhouse neighborhood in demand because the local hospital is expanding. The townhouse development on the other side of town languishes.
- We can see in certain neighborhoods that were constructed during the height of loose lending practices now have a large number of short sales. This affects the prices in that neighborhood negatively, while just a few blocks away, another neighborhood is showing appreciation.
- Price ranges play a roll in what kind of market we see. In most of our neighborhoods, we are not seeing appreciation in the higher price ranges (above $500,000). We are seeing a longer time on the market and more price reductions to get a home sold.
So, even within the same city, neighborhood trends can create a hyper-local demand that varies from one to the next, for a lot of reasons. Supply and demand still determines the local market.
Dealing with Multiple Offers
In an appreciating market with low inventory, we naturally see multiple offers on homes that are well-priced and in good condition. How does a buyer navigate a situation with multiple offers?
A few years ago, a buyer had time to consider a home, but didn’t worry about it if they missed out on a house, because more than likely, another home they liked would come on the market soon. Not so today. When the inventory is tight, but the demand is healthy, buyers often don’t have the luxury of time. They may find themselves in a multiple-offer situation.
When a buyer is in a market like this, there are some things to consider:
- Buyers need to understand that the days of getting a steal are over. Having that expectation will just assure that they miss out on more homes.
- Buyers should be flexible. Remember that even though you might win the bid with a higher offer, the home still needs to appraise for that amount.
- Buyers should consider offering their best offer when they are in competition for a home. Having an experienced agent is a big help in planning your strategy.
Keeping a cool head and being flexible are the keys to a successful home purchase when the market is in transition. Is it A Buyer’s Market or A Seller’s Market? It’s most often a market with some aspect in transition.
At the Highland Group, we’ve been maneuvering through buyers and sellers markets, and transitions for over 24 years. We’re here as buyer’s representatives to help you make the best of this transitional Frederick real estate market. Contact Chris Highland for buyer’s representation on your home purchase.
Is it a buyer’s market or a seller’s market? It’s all about supply and demand.