Types of Real Estate Markets

14 04 2010

The real estate market is just like any other business cycle as there are peaks and valleys. However, in the long term trend, property value (real estate) has appreciated consistently over the years. Freehold detached homes have averaged a 6% growth every year. Condominiums average an increase of about 4% per year. The market (buyers and sellers) react to the peaks and valleys caused by the general economy, interest rates, and available inventory. The real estate market trends generally happen out of sync of the economy. The real estate peaks and valleys generally start their movement before the market. There are 3 different types of markets in real estate: a Buyer’s market, a Seller’s market, and a neutral market.

Buyer’s Market – exists when there is more inventory available than buyers (more houses for sale). With many options, buyers can take their time and shop around for the best deal. Not every home on the market will sell (some listings will expire). Houses might have to be sold under the asking price or stay on the market for a long period of time.

– Buyers in a buyer’s market: If you can wait for this type of market to buy a house, this would be it! The buyer controls the transaction. From lower sales price to better conditions in the offer, sellers are more willing to accept these offers and even satisfy requests for repairs.

– Sellers in a buyer’s market: If its not urgent to sell, wait it out. Buyers will try and get the house for much lower than the asking price, request for more conditions, demand for seller to cover closing costs and make repairs while keeping clauses that can allow the buyer to walk away from the deal easily.

Seller’s Market – occurs when there are more buyers than the available inventory on the market. Most houses listed will sell and can result in instances with multiple offers. Often times those multiple offers can result into houses being sold over the asking price as a bidding war begins. This happens because of low interest rates or a lack of inventory.

– Buyers in a seller’s market: There is no benefit to buy so if there’s no rush, wait it out. Seller’s will get top price for their house with little to no conditions on the offer as there are multiple buyers bidding on the same property and they will sell it to the person who’s willing to pay the most with the least number of conditions.

– Seller’s in a seller’s market: If you want to sell, this is the time to do it. List-to-sale prices are usually over the asking price. Seller’s control the transaction and can ask for top dollar without having to satisfy conditions.

Neutral Market – happens when the markets are stable, unvolatile. Generally, affordable interest rates and a similar number of buyers and inventory in the marketplace make it a stable neutral market. This results in a calm marketplace without volatile changes in up/down swings. Therefore, there isn’t a specific favourable side for buyer or seller.

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