What are buyer’s, seller’s, and balanced markets?
Whether it’s when spring temperatures start to climb and snowy yards give way to green growth, or summer is over and everyone is back to a regular routine, buyers and sellers start pushing the real estate market into high gear. It’s during times like these that we start to hear the terms “seller’s market,” “buyer’s market,” or “balanced market” being tossed around, and it’s easy to get a general sense of what they mean: seller’s markets mean conditions are favorable for sellers to get higher prices for their homes, buyer’s markets allow buyers to come in at lower prices, and balanced markets are, well, balanced.
To get a little more precise, these market labels indicate what’s occurring in terms of housing supply and demand, and they’re actually based on statistical data. One way of measuring and classifying the market is to look at the sales-to-new listings ratio. This ratio compares the number of sales in a given market to the number of listings going on the market, revealing how “in demand” the houses are in that area and how many qualified buyers are on the hunt. In a seller’s market, the sales-to-listing ratio is generally at 60% or more, which translates to six or more sales for every ten new listings. In a balanced market, the ratio is between 40% and 60%, and in a buyer’s market, you’re looking at fewer than four sales for every ten new listings.
Another effective way of measuring market activity is to look at the rate at which homes are selling, or, the number of months of inventory (MOI). According to the Canadian Real Estate Association (CREA), the MOI indicates “how long it would take to completely liquidate current inventories at the current rate of sales activity.” According to this measure, a seller’s market occurs when the MOI falls at or below four months, in a balanced market it falls between four and six months, and a buyer’s market is when the MOI is more than six months.
Of course, you don’t necessarily need to crunch numbers to have a sense of what kind of market you’re in – you can get a preliminary idea by listening to what’s going on in your neighbourhood. What we start to see in a seller’s market is a large number of qualified buyers competing for a small number of homes, allowing sellers to drive up their prices. As a result of the lack of inventory, seller’s markets can push buyers to make bolder offers with shorter closing dates, few or no conditions, and even cash deals. Buyer’s markets, on the other hand, can force sellers to be more competitive with their prices, and often result in lengthier times on the market.
In a fairly balanced market, it's a great time to buy or sell. This year, we’re anticipating that prices stay in check while sales activity remains brisk. But before you decide to take the plunge as a buyer or seller, consult with your local Purplebricks REALTOR®; he or she will help you understand the market conditions where you’re selling, buying, or both! Your agent will have insight into current supply and demand, as well as factors like property developments in the area, or plans for improved infrastructure that can affect prices. With the dedicated service of a Purplebricks agent, you can rest assured that you’re selling for the right price or buying at the best price in your market.
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