Around the nation, the number of homes listed for sale is down and
buyers are left chasing after a shrinking supply of decent real estate. Basic
economics tells us that if the trend holds, prices will continue to go up. This
trend is called a seller's market. You may be wondering what it means for
those about to buy or sell a home.
Supply and Demand
The housing market is, like any other market, driven by supply and demand. In a
seller's market, there are few homes for sale relative to the number of buyers
wanting to make a purchase. Buyers compete for the low housing stock, which
drives the prices up. You'll only ever see bidding wars and contingency-free
offers in a seller's market.
A seller's market can blanket an entire country, state or city. At
a local level, seller's markets may be confined to a single neighborhood or
street. These hubs have consistently tight inventory and, thanks to their great
schools, transport links, architecture and community involvement, stay
largely immune from market fluctuations.
Real estate professionals are the first to spot trends in the market. Average
inventory is about six months. This means that, in a balanced market—one that
favors neither buyers nor sellers—there are enough homes on hand to keep the
market moving at its current pace for the next half-year. When inventory drops
below six months, the market is shifting towards a seller's market.
A second statistic, the Sales-to-Listing ratio, compares the
number of listings taken to the number of sales achieved in any given period. A
result of 55 percent or greater—55 sales for every 100 listings—is considered a
seller's market. A result of 35 percent or lower—35 sales for every 100
listings—is considered a buyer's market. Anything in between favors neither
The final indicator is the Sales-to-List Price (SLP) ratio. This
measures the final sale price of a property relative to its list price. A ratio
of 100 means that the home sold for exactly its list price—a sure sign of a
seller's market. In 2004 and 2005, the median SLP for some states was near 100
percent. In 2008, when house prices went into free-fall, the ratio took a
Real estate markets are local and each of these ratios mean
different things in different neighborhoods. Local agents work within the
ranges that define a particular market for a particular locality. As with all
ratios, market measures have a high end and a low end. Just because a home is
in a low-end seller's market, doesn't mean that it will sell quickly for a
higher price. It simply means that, on a balance of probabilities, more
potential buyers are able and willing to buy the home.
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