Understanding Market Conditions

Let’s say you’re thinking about buying or selling a home and a local real estate professional tells you it’s the perfect time as it’s a buyer’s market/seller’s market/balanced market—what do those terms mean and how do they affect prices, listings and potential home buyers and sellers?

At their most simple, a balanced market is one in which demand for property equals the supply of available property; a seller’s market is when there are more buyers looking for homes than there are homes for sale; and, a buyer’s market is when there are more homes to choose from than there are buyers.

Real estate professionals often speak anecdotally when they talk about market conditions, but there are statistics they can use (and should be using) to back up their assertions. When determining the state of the market, real estate professionals will typically look at three figures:

1. number of days on the market
2. sold price as a percentage of listing price
3. sales-to-new-listings

Examining those three items together will paint a picture of market conditions for a given real estate market.

A falling number of average days on the market, plus rising sold prices as percentages of listing prices and sales-to-new listings above 55% indicate a seller’s market. A rising number of days on the market, plus falling sold prices as a percentage of listing prices and sales-to-new-listings of under 40% strongly points to a buyer’s market. And in the middle, where the number of days on market is steady (around 45 days) and sales-to-new-listings are between 40-55%, you’ll find a balanced market.

So, what does it mean for home buyers and sellers? In a seller’s market, there is a smaller inventory of homes available for sale, house prices generally increase as a result and homes sell more quickly. And, in a buyer’s market, prices tend to be lower and homes tend to experience a greater number of days on the market before selling. As a result, buyers tend to have more leverage in negotiating a purchase.

Remember, though, anytime you’re looking at real estate market conditions—those conditions can vary greatly, even within the same city or province, as the real estate market is uniquely location-dependent.

What has been your experience with ‘balanced’ markets? What’s your sense of the situation within your local real estate market?