What Types of Real Estate Market Are There?
There are three types of real estate markets. A seller's market, a buyer's market and a neutral market.
A seller's market is when market conditions favour sellers over buyers.
Generally speaking, it is when there is a higher demand for houses for sale than there is supply. A low inventory of homes for sale means there are more buyers competing, which drives up selling prices and results in homes selling faster.
It is characterized by homes spending less time on market (DOM or days on market), with selling prices at close to or even surpassing list prices (SP/LP or sale price to list price ratio). Bidding wars, or multiple bid scenarios are common in a strong seller's market.
According to the Canadian Real Estate Association, a key metric to look at is the number of sales to new listings ratio (or SNLR). At the end of 2019, the long-term average for this statistic nationwide was 53.7%.
When the SNLR is higher than this, the market leans toward sellers. As you can see in the chart above, it is well above that level - in fact, at a high mark since the beginning of 2014.
Another factor is MOI, or months of inventory. This is the number of months it would take to sell all homes listed, at the current pace of sales, if no further listings were added to the market.
At the end of 2019, the national MOI was at 4.2 months, with the long-term average being 5.2. When this number is below the long-term average, it favours sellers. Again, these numbers are at 5-year lows.
A buyer's market is the opposite of the seller's market.
Simply put, it is when market conditions favour the buyer over the seller.
In this type of market, buyers are not under pressure to act quickly, and they are able to take advantage of sellers who may be under pressure from competing listings and a longer time on the market to give concessions in price and other terms.
Looking at the national chart, the two metrics being shown didn't really get far into buyer market territory at all since 2014.
A balanced market is when conditions are neutral to both seller and buyer.
Basically, it is when inventory is adequate to supply demand, and prices generally are stable as a result.
The national chart showed balanced market conditions throughout 2018 and the first half of 2019.
Why it's Important to Know What Kind of Market We're In
If you know the current market type, you can better strategize and act when either selling or buying (and often, both!).
Working with an experienced agent, you can take steps to maximize your chances of success. Knowing where you stand allows you to negotiate from a position of strength, rather than uncertainty.
Durham Region and the Greater Toronto Area has been in a seller's market for some time now.
Buyers need to be prepared to act quickly by getting their finances in order (get a pre-approval, or have liquid capital ready). They should also be in an action-oriented mindset. Sitting on a decision, even for a few hours can be disastrous in a market like ours is at right now.
Sellers can benefit from the current conditions by taking extra steps to set their property apart through marketing and staging, together with a good pricing and negotiating strategy.