Real Estate Investors: Is it a Buyer’s Market or Seller’s Market?
So, you have made the important decision to be a part of the vast world of real estate investing? You already own one or few rental properties? Or you have just started looking for your first investment home? In any case, whether you are new to real estate investing or have rich experience in the business, don’t forget to study the US housing market before you make your next investment move. Before you decide to sell or buy a rental property, you have to answer one very important question: Is it a buyer’s market or a seller’s market right now? Don’t make the same mistake that so many people make by not studying the current state of the housing market.
To begin with, what is a buyer’s market and what is a seller’s market and how do we distinguish between the two?
What’s a Buyer’s Market?
A “buyer’s market” — or a cold real estate market — is a market in which conditions favor those willing to buy a property. Even without being an expert on economics, you might have guessed that this happens when more people are trying to sell their homes (or rental properties) than those who are looking for a home (or rental property) to buy. A buyer’s market leaves buyers with a wide range of properties to choose from and little competition to struggle with. Buyer’s market is especially good for first-time home buyers or people just starting with real estate investing as it allows you to buy your dream property at a lower price.
Now that we know what a buyer’s market is in principle, let’s see how we can know that it’s a buyer’s market now.
Features of a Buyer’s Market:
- More properties on the market than in past periods
- 6 months or more of inventory on the market
- Listed properties spending more time on the market
- Current listing prices below previous sales prices
- Lower overall closing percentage
- Falling average house prices
- Flourishing real estate ads trying to attract buyers
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So, if it’s not a buyer’s market at the moment, is it a seller’s market?
What’s a Seller’s Market?
Well, a seller’s market — or a hot real estate market — is the opposite of a buyer’s market. This is when conditions are in favor of those selling a property. A seller’s market materializes when more people are trying to buy a property than those who are willing to sell at the moment. Of course, this must benefit the few ones who are looking forward to selling their home. In a seller’s market buyers would be ready to pay a higher price than the listed one in order to secure themselves the property they want. It’s good for sellers as they are likely to make a quick sale at a higher-than-expected price.
The signs of a seller’s market are the reverse of a buyer’s market.
Features of a Seller’s Market:
- Fewer properties on the market than in past periods
- 3 months or less of inventory on the market
- Listed properties spending less time on the market
- Current listing prices above previous sales prices
- Higher overall closing percentage
- Rising average house prices
- Less impressive real estate ads
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What’s a Neutral Market?
A neutral property market, or a balanced real estate market, is when the prevailing conditions favor neither buyers nor sellers. Generally, it means no major changes in demand, supply, and prices.
Features of a Neutral Market:
- Average number of properties on the market compared to past periods
- 3–6 months of inventory on the market
- Listed properties spending regular time on the market
- Current listing prices similar to previous sales prices
- Stable average house prices
- Regular real estate ads
- Stable number of sellers and buyers
Now we come back to the original question which we are trying to answer here: Is it a seller’s market or a buyer’s market in the US right now? Experts seem to agree that the current US housing market tends to favor sellers. This means that for those engaged in real estate investing, now is the right time to sell a rental property rather than to buy a new one.
Here Is Why It Is Most Probably a Seller’s Market in the US Right Now:
- Property supply is low. The housing market has shifted from vast oversupply to what looks more like a shortage in 2016. The inventory of all homes for sale has gone down by more than 35% in the last 4 years. That’s great for existing homeowners as it means that their homes are in high demand at the moment.
- Prices have been on the rise. After prices hit the bottom 4 years ago, they started steadily going back up. Actually, nationwide levels are forecast to reach all-time peaks as those seen during the housing bubble.
- Job growth has been strong. The economy is set to achieve full employment in coming months. In addition, wages are increasing. All this means that working people will be able to afford to take loans to pay for their newly purchased properties.
- Mortgage rates are not expected to go much beyond the 4% level. Combined with an improving job market, this is good news for those looking to sell their home.
- Millennials are now starting to buy homes. This is the largest generation in the US till now, and once they enter the housing market, demand will be huge. Moreover, it still remains more beneficial to buy your own home instead of renting, so this puts additional upward pressure on demand.
If these arguments have been enough to convince you to explore the possibility of selling your own rental property, make sure to perform a proper real market analysis.
Of course, we should also remember that the US housing market is not a homogeneous one. Different states and regions are likely to experience some major differences, so while one state might be a seller’s market at the moment, another one might just as well be a buyer’s market.
Originally published at www.mashvisor.com.