U.S. home prices rarely fall during recessions, and the latest downturn follows that pattern.
What is a buyer’s market?
A buyer’s market occurs when there are more homes on the market than there are buyers. In a buyer’s market, buyers have more negotiating power because they know that they can easily move on and get their desired terms met on another property.
Though the term “buyer’s market” is most commonly used to describe the real estate market, it can apply to any product. For example, after the Beanie Baby craze of the late 1990s there became an excess of stuffed toys that few people were interested in buying. Suddenly, a product that was once considered a smart investment became passé, and there were far more people hoping to sell their product than there were buyers. This oversupply led to a buyer’s market, with much lower prices.
While real estate represents a far more serious investment than a toy, the principle is the same. When there are more sellers than buyers, the buyers control the market.
The concept of a buyer’s market stems from the law of supply and demand. Constant demand for a product puts downward pressure on prices, while increased demand puts upward pressure on prices. In the case of a buyer’s market, there are so many properties for sale that prices are driven down. The demand is simply not there for every property on the market.
Are you considering buying a property? Take a look at Bankrate’s mortgage calculator.
Buyer’s market example
It becomes clear that a buyer’s market is in effect when you see the following:
- “For sale” signs begin to pop up with greater frequency.
- Property tends to sell for less.
- Property sits on the market for longer than average.
- Sellers begin to compete in price wars to entice buyers.
- Sellers offer “extras,” such as furniture, new carpeting or lawn equipment to attract buyers.
- Homes are taken off the market for a short period of time, then relisted to make it appear as though they are new listings.
Are you selling your home? Here are five tips to selling a house in a buyer’s market.