Are we in a Buyer's market or Seller's market?
Are we in a Buyer's market or Seller's market? That is one of the most frequent questions I get. And it is a good one. If you are getting in to the market or out of the market, you should have some idea of what you are dealing with as it will affect your strategy whether you are buying or selling. First, let's define what a Buyer's or Seller's market is.
Buyer's Market
In a buyers market, there are more homes for sale than there are buyers, so the housing market is favorable to buyers (unfortunately for sellers!).
Seller's Market
In a seller's market, there are more buyers looking for homes than there are homes available. A Seller has the upper hand in this market and it is not uncommon to see multiple offer situations.
So how do you determine the type of market you are in? There are a number of factors to look at and here are some of the important indicators.
Inventory
Inventory simply refers to the number of homes for sale in a given area or subset. It is important to keep in mind the market can be sliced and diced in a number of ways. Area (city, county, or zip code) is the most frequently cited stat when referring to inventory. However, here are a few more ways you can slice it:
- Type: Single Family Home (SFH) vs Condo. This is especially relevant in Arlington where half the market is condos.
- Price: The luxury market (roughly $1M and up in this area) sometimes looks very different than lower price ranges. This can be caused by a number of factors including jumbo lending rates and changes in tax policy.
- Building: Yes, you can even differences from one condo building to another. This can be caused by internal factors like a special assessment or external factors like an adjacent, new construction project.
Inventory is typically measured in months of supply. A supply of five months or less is generally considered a seller's market and seven months or greater is considered a buyer's market. In between 5-7 months is considered a balanced market.
You don't need to be a rocket scientist to see Arlington, as a whole, is in a seller's market.
Days On Market
The length of time a listing is on the market before it goes under contract is another important indicator of the market. With the Days On Market (DOM) stat, you want to look at trends and compare it to previous time periods. The real estate market is seasonal and the spring time is the busiest and listings are on the market fewer days than in the winter so make sure you factor that in.
Looking at a 3-year time frame, you can see how quickly the market moves in the spring months. Comparing March & April of 2018 to 2017 and 2016, you will see the DOM is even lower than previous years. That trend is another indicator of a Seller's market.
Sales Price to List Price Ratio
A third indicator of whether we are in a Buyer's or a Seller's market is the Sales Price to List Price Ratio. In a Seller's market, sellers will get close to what they are asking for. I can remember the overheated market in 2005 and 2006, where the average sales price was 102% of the asking price. Now, that was a Seller's market that we are unlikely to see again.
Looking at the price ratios for the past two years, it shows a strong Seller's market, especially for single-family homes, where they are selling at nearly 100% of asking price.
Pricing Trends
Pricing trends are still another important indicator of the market. The average price will vary from month to month so it is more important to look at trends over a period of time. Lately, the average price for condos in Arlington has been steadily increasing.
Whether it is a good time for you to buy or sell in this market is a very personal decision. There are many factors to consider besides just the market. You can still make a good purchase in a Seller's market or overpay in a Buyer's market. If you would like to discuss your situation more in depth, feel free to reach out to me.
