What is a Seller’s Market?

Investing Basics, Planning & Saving, Real Estate, Retirement & Investing
on September 24, 2013

In real estate, a seller’s market can be a great time for a homeowner to sell his or her house. If someone is looking to buy a property, however, it might not be a great time to start looking. To understand why this is true you have to understand exactly what their realtor means when they say an area is under a “seller’s market”.

Essentially, a seller’s market is a period of time in which the conditions of the real estate market favor those that are holding inventory. This usually means that there is a low amount of available inventory for sale and a high number of people looking to buy. As with any market, a low supply and high demand means that there will be an increase in prices. Because seller’s tend to reap the benefits of high real estate prices, the market is referred to as a “seller’s market”.

There can be several reasons why an area experiences a low inventory when demand is high. Historically, seller’s markets have appeared in areas that have experienced a sudden population explosion. Usually this is due to the availability of jobs, but in recent years seller’s markets have occurred in areas that have simply been labeled by major media outlets as great places to live or retire to. Because construction tends to lag behind demand, people who already hold property in these areas are able to get top dollar for their real estate.
An increased demand can also be fueled by access to credit, such as the case in the most recent housing boom. When a large portion of the population is able to obtain a mortgage that they otherwise would not have been able to get, there is an increase in the number of people who start looking for homes. While this trend has historically been seen among first time buyers, investors who are able to get better bank terms on new loans can also fuel an increase in demand.

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Most buyers assume that they should not buy a home during a seller’s market due to the lack of choices and high prices. While this is true, some buyers have discovered that they can make a profit during a seller’s market. People buying investment property, for example, often find that if they can rent out the property immediately that they will turn a profit. In most cases, however, it makes sense to wait until the buying frenzy is over before starting the search for a new home.

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