Understanding Real Estate Markets Before Buying a Home
Are you wondering if it’s a good time to buy a home? After the mortgage meltdown of 2007, many of you are more cautious before buying a home. You maybe wondering if the market will collapse again and you don’t want to repeat mistakes made by your predecessors.
There are three different types of real estate markets. The type of market depends on inventory, which is the number of homes for sale, and the supply of buyers for those homes. It’s known as the law of supply and demand.
A seller’s market
This is a real estate market populated by fewer sellers, fewer homes for sale and a larger, proportionate share of buyers. When there are more buyers than sellers, generally this causes home prices to go up. Multiple offers are commonplace in seller’s markets.
Logic and common sense tell you it might be smarter to be a home seller in a seller’s market and not a home buyer. However, a seller’s market is when a lot of home buyers prefer to buy. Why? Because all their friends are buying a home. Everything they read tells them they should buy a home. But the truth is they will pay more for that home than in a buyer’s market.
A buyer’s market
This is a real estate market populated by a lot of sellers with a lot of inventory available and very few buyers. Because there are very few buyers and a lot of homes for sale, generally this causes home prices to go down. We currently in a buyer’s market and it is a very good time buy.
At this time, you will encounter very little competition for that home. Sellers may bend over backwards to meet your demands. Sellers will generally make repairs, give concessions and often they will lower their prices to make a sale. But many buyers feel uncomfortable buying in a buyer’s market because the news is so gloomy. Sales are down, homes aren’t selling, and that makes buyers cautious.
A neutral market
A neutral market is when the supply of homes and number of buyers are pretty much equal. Think of it like a seesaw — neither side is touching the ground because the weight on each side is identical.
In a neutral market, there is generally no urgency to buy because there are plenty of homes to choose from; but sellers are unlikely to discount a price because there are also plenty of buyers vying for those homes.
A good time for homebuying is when you can afford to buy a home and interest rates are low. If a mortgage payment would be just about as easy to make as a rent payment, it might be a good time to buy.
