What are buyer’s, seller’s, and balanced markets?

Hand holding a small wooden house with wooden cutouts of people on either side

What are buyer’s, seller’s, and balanced markets?

In the world of real estate, the usual pattern is that when spring temperatures start to climb, buyers and sellers start pushing the real estate market into high gear. Around this time, 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 favourable 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.

How they’re defined

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, a balanced market falls between four and six months, and a buyer’s market is when the MOI is more than six months.

What’s the word on the street?

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.

Trust the pros

In most markets across Canada, the summer is a great time to buy or sell, even if the spring fervor has faded a bit. Though you probably have a sense of conditions in your neighbourhoood, we always recommend consulting with one of our REALTORS® to make sure your expectations are on point. Not only can there can be varying degrees of supply and demand at play, but individual factors, like property developments in the area or plans for improved infrastructure, can affect prices. The insights offered by a real estate professional can ensure that you’re selling for the right price or buying at the best price possible.

Originally published in the Canstar Community Newspapers on April 17, 2017. Republished with permission. Content written by ComFree Commonsense Network.
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