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What is a buyer’s market?

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Published on January 06, 2023 | 6 min read

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In a buyer’s market, an abundance of housing inventory for sale gives buyers plenty of options to choose from — thus giving them more leverage than sellers in the homebuying process. It follows one of the most fundamental laws of economics: supply and demand. When the supply of something is high, consumers have more bargaining power. In a buyer’s market, sellers have to work harder, and potentially offer more concessions, to get a buyer’s attention. For example, if a buyer is looking for a three-bedroom home in a particular area and there are several available, they have the luxury of being picky about which one they prefer based on the best price, terms or condition.

Are we in a buyer’s market?

No — not yet, anyway. It’s been a seller’s market for quite a while, but there are signals that a buyer’s market might be just around the corner. According to the National Association of Realtors, as of November 2022 there was a 3.3-month supply of housing inventory in the U.S., a sizable uptick from the 1.6-month supply in January. However, most real estate experts consider five to six months of inventory to be a balanced market, so we’re still in seller’s territory.

Redfin data points to some promising news for prospective buyers in 2023, including the first annual price drop since 2012. If the company’s numbers prove to be true, home prices will fall by around 4 percent year-over-year.

It’s important to note that real estate is very much a localized business, so a buyer’s market may materialize in some areas sooner than others. For example, in Phoenix, more than 40 percent of listings had price drops in November 2022 — a strong indication that sellers are losing their grip.

One piece of the equation remains a major hurdle for paving a pathway to a buyer’s market: Mortgage rates are still above 6 percent. With borrowing costs so much higher than they were at the peak of the pandemic, buying a home is still a very costly proposition.

Tips for when you’re in a buyer’s market

For buyers

  • Be patient: You don’t need to make big decisions too quickly. You can take the time to build up your credit score and improve your debt-to-income ratio so your finances are solid. You can also take the time to shop around for the right home — one that is within your budget and provides the best location and amenities for you and your family.
  • Don’t offer too much: Many homes were selling for above their initial list price throughout the pandemic, but those days are mostly over. In a buyer’s market, it’s important to make sure you aren’t over-offering. You’re not competing against a lot of other buyers, so work with a real estate agent to develop an offer that’s fair, but doesn’t lock you into paying more than you need to.
  • Ask for concessions: Buyers can negotiate more when there’s less competition. For example, if an issue arises in your home inspection, you have significantly more leverage to get the sellers to repair it on their dime before closing, saving you money. More than 40 percent of sellers agreed to concessions in the final quarter of 2022, according to Redfin — a record high, and a clear indication that sellers are feeling the pressure.

For sellers

  • Find the right real estate agent: Home sellers may be in for a rude awakening when the scales tip in buyers’ favor, so selling with the help of a pro agent is crucial. Experienced listing agents know how to price your home to attract the most buyers, and what will make your home more enticing than competing properties. They can also advise you on cost-effective ways to quickly add value to your home.
  • Price to sell: Homes are sitting on the market longer than they used to — 40 days for the typical home in December 2022 versus just 18 days in May, according to Redfin. Keep this in mind as you work to set your listing price, because ​​the longer a home sits on the market gathering dust, the more likely it is that you’ll need to drop the price to attract a buyer.
  • Consider every offer: Don’t hold out for high-dollar offers that may never come. “Sellers should be realistic and consider all offers,” says Erin Sykes, chief economist with Nest Seekers International. If you’re consistently getting offers in the same price range, that’s probably the market value of your property in a buyer’s market, “regardless of what it was worth a few months ago,” she says.
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Key takeaways
  • In a buyer’s market, buyers can take advantage of more homes to choose from to find the right fit for them. They also have the luxury of time, both to shop around and to make sure their finances are secure.
  • You can certainly sell your home in a buyer’s market. But sellers should work with an experienced agent to make sure their home is priced competitively and has what it needs to bring in the best offers.
  • The overheated housing market is cooling off, and most experts believe that early 2023 will bring slower-than-usual sales activity. While it’s not a full-on buyer’s market, sellers should not expect the bidding wars, all-cash offers and record-setting prices of the past year or two.

FAQs

  • A buyer’s market is a better time to purchase a home. In a market that favors buyers, house-hunters have more options to choose from, more bargaining power and more time to make a decision.
  • The number of homes on the market — aka, the inventory of available homes for sale — is an indication of which party has more power in the sale. When there’s more inventory than there is demand, it’s a buyer’s market. When there’s less inventory than there is demand, buyer competition is fiercer, giving the edge to sellers. Industry experts often talk about inventory in terms of how many months of supply exist. If there is less than six months of inventory available, it typically indicates a seller’s market.
  • It’s best to sell your house when inventory in your area is low. Since there aren’t many options available, your listing is more likely to catch the attention of prospective buyers. If you wait until conditions are closer to a buyer’s market, meaning there is more inventory than needed, you run the risk of sitting on the market for a long time and may wind up selling your home for less money.