How Is The Housing Market

You may hear this question at the supermarket, a networking event, or just in casual conversation.  Do you really know how the housing market is?  Do you know how to find out?

If you are thinking about buying or selling a home, you should. You should have a better understanding of how your current home fits into your overall financial picture.

Markets go up and down.  They have cyclical patterns. Home styles go in and out of fashion, buyer and seller demand ebbs and flows, housing inventory, expands and contracts.  All of these factors and more influence your ability to make an acceptable offer on a home, the price you as a seller might get, and even the appraisal of the property by a lender.

In order to bring these factors together for a smart and confident decision in a real estate transaction, you will want some knowledge of how the market is doing.  Too little knowledge will not serve you well as people are likely to see it as a bluff.

What you should try to achieve is an understanding of typical cycles and how your local market is responding to national market trends.  Below are some of the basics.

Housing Market Basics

Buyer’s market:  By definition, a buyer’s market happens when there are more homes for sale than buyers actively looking to purchase a home.  This situation gives buyers an advantage. If a seller does not want to wait for the right buyer at the right price they may be more willing to negotiate on price or make other concessions, such as performing certain repairs prior to the closing or paying some closing costs.

Seller’s market: A seller’s market is defined as a time when there are more buyer’s looking to purchase a home then there are homes available for sale. This can lead to competition between buyers, bidding wars, more substantial down payments, and causing the property to sell at an inflated price compared to the lender appraised value.

Balanced market: Between these two market conditions lies a balanced market. Buying a home is not an impulse decision.  Buyers spend time looking at properties, sellers may need time to find new housing, liens may need to be cleared, and lenders often take 30 to days to finalize paperwork.  All of this adds time to the equations of what type of market condition exists.  If there is a roughly equal number of buyers compared to homes available for sale within a three to six month period a balanced market is said to exist.

The national market compared to the local market: Laws, regulations, and local economies vary widely across states. This leads to a real estate market that is extremely local in nature even within some regions of some cities. San Francisco has a much different real estate market than Bismarck, North Dakota, and Denver, Colorado is a much different market than New Orleans, Louisiana.

If you want to know the relative value of your home or a prospective home, then you should focus on the local market.  If you are trying to find cycles and trends, then the national market may be a better indicator to look at.

The monkey wrench:  Part of every negotiation takes into consideration what is more important for the buyer and seller, the price and speed.  There are sellers and buyers that have a price stuck in their minds and will not budge.  This makes any negotiation in any market condition extremely difficult.   There are buyers and sellers that need to move fast, often because of a relocation or the sale of their primary residence, and there are those that do not have to proceed as quickly.  Buyers and sellers with time limits will typically be open to more negotiation than those that can wait.

Other factors are influencing market changes.  Consumer confidence, the job market, zoning laws, and leader regulations all affect the overall market, and an individual is affected by their own personal finances.

Unlike the stock market that can crash in a single day, houses are large physical entities, highly valued assets.  They take time to build.  It is the slow-moving nature of real estate markets that prevent them from crashing on a regular basis.

2008:  The housing market did crash in 2008. Seven million people lost their homes. Millions more found that they owed more in their mortgage than their home was worth. The causes were, of course, many and included predatory lending, lending based on presumed future earnings and the like. Regulations have been enacted that may prevent this from happening again.

So, how’s the housing market?

Housing marketing trends. The nationwide trend is that it is a seller’s market with buyer demand for homes more than the available inventory from sellers.  Check your local area to see if this is true for you.  A real estate agent can help with this.

There does appear to be some change in the wind. New home construction has not kept pace with buyer demand.  Buyers are feeling a little priced out of the market, and many are opting to rent long term rather than buy.

This has meant that there is more inventory available. However, it still does not meet buyer demand. This is especially true in the more affordable entry-level home market which builders are reluctant to construct.

Builders also have their own worries. More zoning laws, tariffs on lumber and steel, coupled with a shortage of skilled workers in the building trades have all had an impact on new home construction.

 

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