I’ve been answering questions on Quora.com late – the question and answer site. The other day a question came up which was, “How do you know if we’re in a buyer’s market” or something to that effect. That’s an excellent question, glad you asked! There is no barometer or scorecard published that lets consumers know. A buyer’s market happens simply when there are more sellers than buyers, that is, there’s more supply than demand. The way this shows up is the amount of inventory available on the market, relative to the demand for it . The classical definition of buyer’s market is when there’s more than a 6-7 month supply of inventory. How do you calculate the available inventory? It’s simply the number of homes listed for sale (including those under contract to be sold) – in a discrete market, perhaps a zip code or an entire city. Then you calculate how many homes have sold in that same discrete market in the past six months, and then you divide that number of sales by 6 to get the average number of sales per month. Divide total inventory by the average sales per month to get the months of inventory available. Less than 6 months of inventory has traditionally been considered a seller’s market, a 6-7 month supply is considered as being in balance, and a 7+ month supply is considered a buyer’s market. But the traditional definition seems to be weakening. In my market, we have a 4-4.5 month supply of homes – so this would indicate we are still in a seller’s market. But “days on market” (how long it takes a home to sell) is up about 50% vs. a year ago, and price-per-square-foot is down 3-4%. The median price is up, because larger homes are selling – but on a cost-per-square-foot basis, prices have moderated some. In a seller’s market, it’s uncommon to see any kind of decrease in prices, so it appears that we are now in, or close to entering, a buyer’s market in Santa Cruz – even though the available inventory is still below 6 months.
How do you know when it’s a buyer’s market?
The Little Things Can Make All The Difference
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