What is a seller’s market?
September 11, 2020
If you’re not already a real estate market expert, you may not know: what is a seller’s market? What are the signs of a seller’s market? What does a seller’s market mean? And more importantly, how does a seller’s market affect a home buyer?
Fret not! I am Michael Noker, Albuquerque’s tallest, blondest REALTOR and head of Dumb Blond Realty. And I’m here to help you!
How does the real estate market work?
To understand what is a seller’s market and what is not a seller’s market, we first have to look at the real estate market as a whole.
The short answer? The real estate market is the total supply and total demand of homes in any given area.
That area can be as narrow or as broad as you’d like, by the way. There’s a real estate market in Albuquerque. There’s a New Mexico real estate market. Technically, there’s even an international, global market.
We’ll focus on local areas in this post.
So, what’s the market?
The real estate market is a “balance” of homes
This means a balance of the number of homes for sale and the number of families who would like to buy a home.
To really put it simply, say there are five families. Each of them want two bedroom, one bathroom homes in Albuquerque’s Northeast Heights. There are exactly five two bedroom, one bathroom homes in Albuquerque’s Northeast Heights.
What do we get?
Equilibrium in economics refers to an exact match of supply and demand. At this level of economic activity, a good (like a home) is sold for its fair market value. Consumers want a certain quantity of Thing. Producers make that same quantity of Thing. Consumers offer to buy Thing at Price that makes both themselves and the producers happy.
A seller’s market means too many buyers
What happens if there are still five homes, but now we have six buyers?
Competition — among consumers.
In this scenario, prices rise.
If you were selling five cake pops, but six people wanted to buy them, someone is going to lose, right? And who will it be? The one who can pay the least.
Same thing with houses.
So what is a seller’s market?
A seller’s market is defined as any market in which there is a higher demand for homes than the supply.
That’s it. Easy as, right? I’m your real estate expert now, and I can have your business?
Oh, there’s more?
How does a seller’s market affect home buyers?
Oh, right, I suppose you would like to know what a seller’s market means for you.
In short? It sucks.
Long answer? It actually kind of depends.
Why seller’s markets are a bad time to buy
In our example above, we followed the economic logic: in a seller’s market, prices will rise.
This is the case right now in a lot of markets. As a whole, most of the country has been in a seller’s market for the better part of a decade — if not a little longer. Once mortgage rates hit historic lows? All hell broke loose.
Legit, Albuquerque’s real estate market is just… insanity right now.
Right now, homes are selling for upwards of $20,000 over list price. Most homes are getting multiple offers — not like five, but like 20. Or 46.
When homes are priced right, they’re selling in 48 hours.
That means competition for buyers. It means it’s that much harder to write a competitive offer. It means there are no negotiations — just submitting your highest and best, and hoping for a good result.
So it sucks.
I work extensively as a buyer’s real estate agent. I’ve shown multiple properties that my clients loved, only to find out the home was under contract before we could even write an offer.
I normally focus on education for first-time home buyers because I love it. Now I do it just to manage expectations.
Why it’s actually a good time to buy
So home prices are inflated, and that sucks.
And competition is steep, and that sucks.
But guess what?
The seller’s market had to be created by something. In our scenario, six families wanted to compete for five homes. So why do you think that is?
Why do seller’s markets happen?
What is a seller’s market? Do you remember?
Well, it’s an excessive level of demand for homes.
The demand right now is coming from somewhere. I think it’s coming from a few places:
- For example, mortgage rates are still crazy low. This could potentially save you thousands of dollars over the course of your loan — maybe even enough to offset the higher purchase price.
- In addition, you can still write a competitive offer in a seller’s market. Think about it: someone is winning. Why can’t that be you? Just work with the best real estate agent who knows how to write a clean offer (Hint, hint).
- Also, home values still depend on the market. There is no legal ceiling for home prices, but the home buying process includes appraisals. If you’re financing your home, odds are your lender will get an appraisal. Once this comes back, you’ll have a chance to renegotiate your purchase price. Appraisers aren’t prone to factoring in the market conditions — they prefer inherent value. This keeps home prices relatively stable, even in crazy markets. It’s also one thing I consider when writing a clean offer.
- Finally, Albuquerque is a great place to live. There’s a reason why our market is exploding locally!
But what if it’s not the right time to buy?
Seller’s markets are good for preparing yourself to buy
A seller’s market can only last for so long. Markets tend to swing back and forth. For instance, when supply gets too low, home builders start going to work on new construction. At the start of the pandemic, a lot of them halted their work due to uncertainty. If one thing is certain, it’s that home builders hate uncertainty.
The market is still a bit uncertain, so they haven’t all gotten back to work. For example, we don’t know how evictions are going to play out once the moratorium is lifted. Second, nobody knows how many homes are going to get foreclosed on when the moratorium is lifted. Finally, we don’t know what’s going to happen in a month when the first wave of pandemic-related unemployment runs out.
We also don’t know how long mortgage rates will stay here.
So what’s the bottom line? If you’re interested in buying a home, now is as good a time as ever to start preparing for it.
In conclusion, either we’ll have a wave of foreclosures, or home buyers are going to get back in gear. There’s a strong demand for housing, and the market is going to meet that demand (period).
So if you’re toying with the idea, keep getting informed here. Keep reading this block — especially our home buyers’ resources. Or, if you feel like taking our relationship to the next level, you might consider downloading our free, first-time home buyers’ guide.
Of course, never hesitate to reach out.
So what is a seller’s market? You tell me! Comment down below with what you learned, and don’t forget to subscribe for more information like this.