Whether you’re investing in student rentals, looking to fix-and-flip, or just buying a home for occasional Airbnb use, understanding the larger real estate market is critical.
The truth is, real estate is always in flux. Home prices, interest rates, and market trends evolve daily, and understanding these ebbs and flows can help make you a smarter (not to mention richer) investor in the long run.
Not sure where to start? Begin right here. This guide breaks down everything you need to know about the real estate market, the state of housing, and the trends you need to be aware of as you choose your next investment.
A Caveat: Every Market is Different
Though you can certainly look at nationwide stats like median home price, sales volume, or the number of homes on the market, the truth is real estate is local. Every city, county, and state has its own unique marketplace, with its own unique buyers, sellers, and trends. There are even different rules and regulations to contend with in each area.
Because of this, real estate markets vary greatly depending on locale. In San Francisco, for example, the median listing price comes in just under $1 million — a far cry from the budgets of most average Americans. In Cleveland, Ohio, though? You can find a spacious, single-family home for less than $190,000.
If you’re planning to invest in, buy, or sell real estate, it’s important to be tuned-in to your local market — not just what’s going on nationwide. While the overall economy, mortgage rates, and other trends will play a role, your purchase will be most influenced by the factors at work in your specific marketplace.
Types of Real Estate Markets
There are three types of real estate markets you can find yourself in locally: a buyer’s market, a seller’s market, or a balanced market. The exact market you’re in should inform your approach as you choose investments, make offers, and negotiate deals.
Here’s what these markets look like:
Buyer’s market
A buyer’s market is one in which there are more properties for sale than there are buyers. This means home buyers have the upper hand and enjoy more choices in properties, as well as more negotiating power when making a purchase. If you’re buying a home, this is the ideal market to do it in.
In a buyer’s market:
- Homes take longer to sell.
- Buyers have more listings to choose from.
- Buyers have less competition.
- Buyers can make lower offers and negotiate more on sales price and closing costs.
- Sellers may have to do more to market their properties.
- Sellers may need to lower their price points.
Seller’s market
A seller’s market is the opposite. In a seller’s market, there are fewer listings than there are buyers, and buyers face stiff competition among themselves. Because of this, they may encounter bidding wars or their home search might take longer than expected. If you’re looking to sell a home, a seller’s market is the best time to do it.
In a seller’s market:
- Buyers may have a hard time finding a property.
- Homes sell quickly.
- Buyers face stiff competition.
- Sellers can demand higher price points.
- Sellers can be picky with who buys their home.
Balanced market
In a balanced market, buyers and sellers are on even ground. The number of homes for sale is on-par with the level of demand, and neither side has an upper hand. Balanced markets tend to last for shorter amounts of time than buyer’s or seller’s markets, and they usually occur between the transition from one market to the other.
In a balanced market:
- The number of homes for sale is in line with buyer demand.
- Appraisals are on par with offers.
- Home prices aren’t rising or falling steeply.
- Neither home buyers nor sellers have much power to negotiate.
| BUYER’S MARKET | SELLER’S MARKET | |
| INVENTORY | Low | High |
|---|---|---|
| DEMAND | More sellers than buyers | More buyers than sellers |
| NEGOTIATING POWER | Lies with the buyer | Lies with the seller |
| COMPETITION | Little buying competition | Stiff buying competition |
| SALES SPEED | Homes sell slower | Homes sell faster |
| PRICING | Homes sell for less | Homes sell for more |
The Housing Market Crash
You can’t talk about the real estate market without looking back a few years. Though the housing crash and Great Recession occurred more than a decade ago, the crisis is still very much on American’s minds — especially those looking to enter the real estate market.
More than 7 million Americans lost their homes during the housing crash, which occurred between 2007 and 2009, amidst the Great Recession. The problem stemmed from a few issues occurring during this time period:
- Risky and fraudulent lending practices, which allowed home buyers to purchase homes or take out mortgages that were beyond their means.
- Blind secondary market activity, which made it difficult to spot the low-quality loans that were being originated.
- Rising interest rates, which made adjustable-rate mortgage loans unaffordable to the many Americans who had them.
- Quickly deteriorating home prices, which made it difficult for homeowners and banks to sell their properties once they fell into default.
Naturally, the fear of another similar event has many worried, especially with recession predictions running rampant. Fortunately, lending standards have been tightened since the years of the crisis, and thanks to the Dodd-Frank Act, the Home Mortgage Disclosure Act, and other new laws, there are more protections in place than ever. The Federal Housing Finance Agency was also created to ensure these and all mortgage regulations are adhered to.
