Most people have heard the terms “Buyers' Market”, “Sellers' Market” and "Balanced Market", but do you know what they really mean and how they're determined?
There are many factors which affect the real estate market — interest rates, employment, investment growth, legislative changes and new construction, to name just a few. All of these factors influence the real estate market in some way.
In a Buyer’s Market, there are more homes for sale than there are buyers. This could be a result of high unemployment, fear of interest rate increases or other factors which make people think twice about purchasing a home for the first time or moving up into a larger home.
The advantage buyers have in a Buyers’ Market is that they can typically take a little more time and look at more options before buying. Buyers also have more options because sellers are more anxious to sell. Overall, home prices may remain somewhat stable or go down in a Buyers' Market.
In a Sellers' Market, there are fewer homes for sale to a larger pool of buyers. The factors at work could be sustained low interest rates, a high employment rate, legislative or regulatory changes which make it easier to purchase a property — events and conditions that make buyers think it would be a good time to buy a big ticket item like a home.
The advantage goes to the seller in a Sellers' Market — typically home prices will rise as sellers price their homes slightly above market value to keep out of competition and eager buyers are quick to make an offer to secure the property; sometimes buyers will compete for a property, driving the price above well expectations and what is often considered reasonable.
In the period of time between a Buyers' Market and Sellers' Market it's called a Balanced Market. Here, there are about as many buyers buying homes as there are sellers selling them. Supply roughly equals demand. Prices in this market tend to climb slowly — roughly at the rate of inflation.
Typically, one speaks of Calgary being in one of these three markets however one should also look at the various micro markets within the whole macro market. These can be neighbourhoods, price ranges or building types. As an example, you may see apartment condos in a Buyers' Market and detached homes in a Sellers' Market within one community while finding the reverse being true in another neighbouring community. The smaller the comparative size of the market, the more erratic the behaviour of the market.
In the Calgary market we talk of zero to 2 ½ months of supply (available inventory divided by the number of sales in the last 30 days) as being in a Sellers' Market. Over about 4 ½ months of inventory is considered a Buyers' Market. In between — 2 ½ to 4 ½ months of inventory — is considered a Balanced Market. [Other centres may likely have differing acceptable numbers for defining their markets.]
Real estate professionals are usually the first to notice whether we are in a Buyers' or Sellers' Market — their business is helping sellers and buyers with their real estate needs and any change in the market affects how they work with their clients and customers. Often, they feel the balance change slightly ahead of the numbers indicating the change.
There is also a statistical measure we use — it’s called the Sales-to-Listing ratio. If there are more listings entering the market than there are leaving (new listings versus sales and expirations), then the inventory builds up and shifts towards the Buyers' Market. Likewise if there are more sales and expirations than new listings hitting the market, the market shifts towards a Sellers' Market. It is these types of changes that real estate professions can feel even if they do only a few sales every year.
While a Balanced Market is ideal, Calgary has tended to be in a Sellers' Market for most of the last decade with only a few instances of being in a Buyers' Market. The most notable time being the 18 months following the financial market collapse in late 2008.