4 Signs of a Seller’s Market

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.

Sale Statistics
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 party.

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 massive dive.

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.

Homes Sales

Homes Sales

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