“We are in a buyers’ market right now, right?”
This is a question asked very, very frequently due to the incredibly low interest rates that we have been seeing in recent months and beyond. It is a question that, on the surface, would seemingly be a “no brainer” to most. But is it really a buyers’ market right now?
In real estate, buyers’ markets vs. sellers’ markets are essentially defined as a level of inventory. Market conditions are defined by this metric in an effort to represent the relationship between supply and demand. The relationship between supply and demand in a marketplace is what influences both pricing and consumer behavior. The laws of economics tell us that when supply is low and demand is high, there will be a level of buyer activity that can often times drives housing prices upward. This type of market condition is considered a sellers’ market. Conversely, when supply is high and demand is low, there will be a lack of buyer activity which can often times drive housing prices downward. If we consider both of these scenarios and the resulting consumer behaviors associated with them (driving prices upward vs. downward), we start to gain a better understanding of why your Realtor always says that the market is constantly changing.
So, what defines a buyers’ market versus a sellers’ market? In order to define a sellers’ market versus buyers’ market, real estate professionals utilize what is commonly known as the “absorption rate”. The absorption rate in a given market tells us the speed at which homes are sold in a market during a given timeframe. This rate is measured most typically in number of months. A six month absorption rate is considered to be a market in equilibrium. An absorption rate lower than six months is considered to be a sellers’ market. This is because there is less inventory than demand and listings are selling quicker than in a perfectly balanced market! An absorption rate greater than six months of inventory is considered to be a buyers’ market. This is because there is more inventory than demand, and houses are selling at a slower pace.
The majority of the state of Connecticut is currently experiencing a sellers’ market. Interest rates are low, which creates a favorable financing environment for buyers. If you finance a home today rather than 2-3 years ago or so, you will end up saving tens, if not hundreds, of thousands of dollars over the life of a 30 year mortgage. This is awesome! Right? Yes! That awesomeness has led to a massive influx of buyers into the marketplace, resulting in a HIGH demand for listings. On the flip side, we have seen a massive reduction in inventory due to the COVID-19 pandemic that everyone has been experiencing across the country.
This reduction in inventory, and simultaneous increase in demand, is continuously driving prices up and creating a most favorable marketplace for sellers. If you have 100 buyers going after the same 10 listings in a specific area, there is going to be increased competition for those few listings. This is the essence of a sellers’ market. Do not be mistaken, though. The impact of low interest rates over the life of a loan can undoubtedly offset some of the pricing inflations that we are seeing through bidding wars. Just because we are in a sellers’ market does not mean that buyers don’t have a TON to gain by locking in at a fixed, low interest rate for a long-term mortgage.
So what do you do? It’s a sellers’ market with low interest rates?! Should you be listing your house right now? Should you be buying a house right now? The answer is both yes and no, for both questions. There is no “one size fits all” answer for either scenario. Speak to your trusted local Realtor. Explain your short-term goals and long-term goals. There are MANY advantages that you can enjoy right now as both a buyer and a seller.
What is “right” for you depends on your goals and ultimately your agent’s ability to analyze the market and apply it to your individual scenario. A GREAT agent will be able to outline all of your options and present them in a way that makes practical sense to the everyday consumer. Do not settle for less.
Thomas Cody, Realtor, C-REPS