Tuesday, November 19, 2013

Back to a Balanced Market

Buyer’s Market, Seller’s Market, Balanced Market.  At times the circumstances of the real estate market will provide advantages to the buyer, advantages to the seller, or relatively equal advantages to the buyer and seller.

Buyer’s Market

In the aftermath of the financial crisis and bursting of the real estate bubble there was considerable advantages for buyers.  First, there were fewer buyers as many people were negatively impacted by the economy and weren’t in a financial position to purchase a home.  Also, there was excess inventory as the construction of homes had exceeded demand, and a glut of foreclosures added to the homes that needed to be sold.  So the result was a few years of very depressed prices, which combined with low interest rates made the buying opportunity of a lifetime.

Seller’s Market

As folks began to recover from their economic woes, there were more potential buyers in the market.  Low interest rates leveraged their buying power.  Since very few homes had been constructed since the recession, the trends of the market started to reverse.  The growing pool of potential buyers didn’t have enough homes available to fulfill their demand, and prices began to increase.  Sellers found themselves in a good bargaining position and buyers had to compete for homes, resulting in bidding wars.

Balanced Market

The market appears to be in a more balanced position today.  Inventory is more adequate as builders are constructing more homes than they were in prior years.  Sellers’ equity positions have improved with rising prices; putting them in a better position to be able to sell their homes and benefit financially.

Some buyers might complain that prices are higher and they missed out of the great bargains of the recession.  Yes, a buyer could have picked up some great deals in 2010 and 2011, and would be enjoying some substantial value increases today.  But the past is the past.  Unless you have a DeLorean with a flux capacitor you need to live in the present.
The present balanced market is good for homebuyers.  They have more homes to choose from than they did just a year ago, and the bidding wars that took place in the seller’s market are much less frequent.  Buyers also are enjoying the extra buying power that comes with very low interest rates.  A 1% increase in rate equates to an increase in price (based on relative payment) of 10% to 13%.  So today’s rate environment is like a blue light special on houses.

Today’s potential buyers shouldn’t be frustrated that home prices have increased.  They are still well below the highs of the last decade.  There are more homes to choose from, and low fixed interest rates give homebuyers tremendous purchasing power.

No comments:

Post a Comment