Over the past several months I’m sure you’ve heard the term “sellers’ market” to describe the current real estate market. Extreme sellers’ market and strong sellers’ market are other terms I’ve also heard, but what exactly does that mean?

There are typically three different types of real estate markets - a sellers’ market, a neutral, or balanced market, and a buyers’ market. The type of real estate market we are in is directly related to the amount of available inventory relative to demand. Continue reading below, or watch the following video, to learn more about how each market is defined and what it means to you if planning on buying or selling a home.

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Defining a Sellers’ Market

A sellers’ market exists when conditions are more favorable for sellers. Likewise, a buyers’ market favors buyers, and a neutral market favors neither buyers nor sellers.

As mentioned above, the type of market we are in is directly related to the amount of available inventory relative to demand. Inventory, in real estate terms, is measured in months supply and examines how long it would take to sell all homes currently listed for sale, at the current pace of sales. As an example, if there are 300 homes for sale, and homes are selling at a pace of 100 per month, then the market would be said to have a 3-month supply of inventory.

The latest Existing Home Sales Report from The National Association of Realtors (NAR) shows the national inventory of homes for sale is currently sitting at a 2-month supply. Historically, anything less than a 6-month supply is considered a sellers’ market, 6 to 7 months is considered a balanced market, and more than 7 months is a buyers market (see graph below)

As noted in the graph, when supply is less than 6-months home prices increase. The lower the supply and higher the demand the faster prices will increase. The markets my team operates in, Frisco and Prosper TX, and Temecula, CA all have less than a 1-month supply. If it seems like prices are increasing by the week it’s because they are given the low supply against strong demand. Even the majority of new home builders are sold out currently.

When you have low supply and high demand, as we do right now, it is much harder for buyers to find homes. Competition among buyers increases and bidding wars take place. These market conditions greatly favor sellers with regard to negotiating favorable contract terms.

For Buyers

Although current market conditions are difficult the situation is not impossible. If you are in the market to buy it is important to make sure you are pre-approved for financing before you start submitting offers and you will need to be as flexible as possible. It is not always the highest price that will cause a seller to accept your offer over another. Terms can be equally important. Maybe you can offer to pay some of the sellers closing costs or allow the seller extra time in the home after closing at no charge. You need to find out what terms are most important to the seller and include those in your offer.

Bottom Line

Over the past few weeks, I have noticed more for sale signs appearing in front yards. We usually see more inventory come to market in the spring and, after putting plans on hold last year due to the pandemic, it is starting to appear as though there will be more sellers in the market this year. In both Frisco and Prosper, the number of new listings in March was the most since August 2020. In Temecula, CA it was the most since October 2020.

Although overall inventory is still well below year-ago levels it is starting to increase, which should start to ease conditions for buyers slightly. For sellers, if your goal is to sell for the highest possible price in the shortest amount of time then now could be the perfect time to put your home on the market as this strong sellers’ market won’t last forever.

If you have questions about the current market or would like to see if now is the right time for you to buy or sell a home Schedule a Call and I’d be happy to help you put together the plan that’s best for your situation.