What Is a Seller’s Market? A Tough Road for Homebuyers

By Daniel Bortz

Apr 20, 2023

(Travis Dove for The Washington Post via Getty Images)

Simply put, a seller’s market is a market where there are more homebuyers than sellers. Based on basic laws of supply and demand, this means sellers have the upper hand: They will likely sell their place quickly, perhaps for over asking price, with a minimum of fuss or pushback from buyers. (Looking to sell? Here’s how to find a real estate agent in your area.)

Meanwhile, homebuyers in seller’s markets face a tough road: Due to increased competition, they’ll have to act fast, bid high, and generally bend over backwards to woo sellers into accepting their offer over the many that may be at their disposal.

So here’s what buyers need to know about seller’s markets—and how to survive them.

Are we in a seller’s market?

For the greater part of 2021 and 2022, the U.S. housing market was a seller’s market. Homes were flying off the market in record time due to historically low mortgage rates and sellers were in the driver’s seat. Buyers all over the country had to waive contingencies and offer over asking just to have a chance at being the winning bid.

But in the last several months, uncertainty about the economy, inflation, mortgage rates, and more has stunted the market—and taken power away from buyers and sellers alike. Some experts have dubbed it “nobody’s market” right now. Others still believe we’re in a seller’s market, especially in hot areas of the country where buyer demand is high and median days on market is low.

What makes a seller’s market?

The main metric used when evaluating housing markets is home price appreciation.

“The greater imbalance of supply and demand, the faster you’ll see price appreciation,” Blomquist says.

Here are the factors that often fuel seller’s markets:

  • Population growth. Generally, when there’s an increase in the number of people moving to a town, demand for housing begins to exceed supply. You can view population growth in your town using the U.S. Census Bureau’s American FactFinder.
  • Job growth. An influx of new companies and jobs can in turn fuel population growth that turns areas into seller’s markets. For example, “wherever Amazon opens its new headquarters, you’re going to see a huge influx of home buyers in that city,” says Seth Lejeune, a real estate agent with Berkshire Hathaway in Malvern, PA. You can view job market trends in your city through the Bureau of Labor Statistics.
  • Housing starts. The term “housing starts” refers to the number of new homes on which builders have started construction in any particular month. Because new construction directly affects supply, a decrease in housing starts can result in a seller’s market. You can see housing starts and other new construction trends in your town on BuilderOnline.com.

Are you in a seller’s market? How to tell

Home buyers and sellers can evaluate whether they’re in a buyer’s or seller’s market by analyzing a few key variables:

  • Average days on market (DOM). This measurement shows the median age of real estate listings in your area. “If houses are selling in your neighborhood in less than 10 days, it’s a strong seller’s market,” Lejeune says. You can find what the average DOM is in your city using realtor.com’s Local Market Trends tool.
  • Asking vs. final home price. In seller’s markets, bidding wars can often erupt among buyers, which means sellers may enjoy a final sales price that’s equal to their asking price, or more. So, if a home is listed at $450,000 and sells for $450,000, $460,000, or higher, that’s a seller’s market. In a strong seller’s market, the final sales price is typically at least 10% higher than the asking price. You can compare listing price vs. closing price in various cities across the country at realtor.com/local.
  • Home prices over time. Rising home prices over time is a sure sign of a seller’s market. You can determine if home prices are rising or falling in your city by looking at your ZIP code’s “market price curve” on BuilderOnline.com.

Buying a house in a seller’s market

To compete against other buyers in a seller’s market, you need to be prepared. First and foremost, you’ll need a mortgage pre-approval letter before you start shopping, so that a seller knows you can put your money where your mouth is.

You may also have to waive some contingencies to edge out other buyers—or widen your search to an up-and-coming neighborhood with less demand.

Other ways to make your offer more attractive include increasing the amount of earnest money that you’ll put into the escrow deposit, adding an escalation clause, writing a personal letter to the seller and, of course, offering above list price. Here’s more advice for home buyers on how to survive a seller’s market.

Source- https://www.realtor.com/advice/buy/what-is-a-sellers-market/