There are two main real estate market cycles: the buyers market and the sellers market. Learn how investors can take advantage of either cycle.
Timing is important in the real estate market. While it tends to be busier at certain seasons of the year, the market cycle is actually based on supply and demand. When you are about to buy or sell your investment property, it is important to know which cycle your local real estate market is in: buyers market or sellers market.
If you are looking for a new investment property when there are many other homebuyers but the houses for sale are few, then you may have a hard time finding an ideal property. But if there are a lot of homes on the market but only a few interested buyers, you will have the leverage to score a great deal on the house you buy.
While it is easier to rely on a real estate agent to understand the market on your behalf, as an investor, you have to be at least familiar with the industry as well. A house is one of if not the biggest investment one can make. And if you want to acquire several properties for your portfolio, then knowing how the real estate market works is the key to earning big.
In this blog post, you will learn:
- Buyers market vs sellers market: Definitions, indicators, and pros and cons of each cycle
- What market cycle is the US in this year and what will the real estate market be like in 2022
- How to buy an investment property when it’s a sellers market
- The best buyers markets and sellers markets to invest in right now
What Is a Buyers Market in Real Estate?
Buyers Market Definition
A real estate buyers market occurs when the supply of homes for sale exceeds the demand. When a surplus exists in a market, sellers have to do what they can to attract buyers. In this cycle, homebuyers have leverage over sellers.
If the number of buyers in a market decreases, then home prices fall as well, and properties stay on the market for a longer time than usual. Aside from dropping their prices, sellers will also be more willing to give concessions to prevent interested homebuyers from walking away.
If you are wondering when was the last buyers market all over the US, that would technically be during and right after the 2008 financial crisis. Because many subprime borrowers defaulted on their mortgages, a number of homes were put on the market as foreclosures. There were a lot of construction projects back then, unlike now, but since a lot of people declared bankruptcy, no one can afford these newly built homes.
Now, you may still find certain areas to be in a buyers market, but these are just part of the normal cycle and are likely isolated from what is going on in the nation’s economy.
Indicators of a Buyers Market
To figure out whether the area of your interest is in a real estate buyers market, you need to look for the following signs:
- There are more homes for sale than there were sold in the last month;
- Newly constructed houses are currently for sale or will be ready for sale;
- Residential properties are selling below the asking price;
- Prices of a number of homes have dropped in the last month; and,
- Houses for sale are taking a longer time than usual to go under contract, usually more than 6 weeks.
Pros and Cons of a Buyers Market for Investors
Investors who want to acquire a new investment property would want to buy in an area that is in a buyers market. Here are five reasons why:
- You have more time to select a property. Because there is less of a concern about losing out on a house that you are interested in, you will be able to do your due diligence before committing to your purchase.
- There are a lot of options to choose from. You can see as many properties as possible and can select the home you wish to invest in.
- You have more leverage to negotiate. Knowing what is available on the market and seeing the different comparable properties gives you the ability to haggle the price or secure more contingencies.
- Lenders could issue a lower interest rate on your mortgage. During a buyer’s market, banks and other lenders would want people to take out loans as a way to stimulate the economy.
- You are unlikely to be in a bidding war. Because there are a lot of houses for sale, you may not have to compete with another buyer. And if you do, you can either easily outbid them or just move on to another home.
But just because a city or neighborhood is in a buyers market does not automatically mean you will get a lucrative investment. When you find an area that is in this market cycle, you must first find out why this is happening. Is this a normal shift, or are residents leaving for a different reason? Check if the city or neighborhood is still desirable to new residents, or you might end up buying into an area that nobody wants to live in.
What Is a Sellers Market in Real Estate?
Sellers Market Definition
Meanwhile, a real estate sellers market occurs when demand exceeds supply. In this market, there are many interested buyers, but the number of homes for sale is fewer. When a shortage exists in a market, sellers are at an advantage. Homes sell faster, and buyers have to compete with each other to acquire a property. Buyers are also willing to spend more on a home that they would not otherwise.
How long does a sellers market last? Economists like Homer Hoyt started studying the real estate market in the 1800s and found that the US real estate market follows a pattern of 18-year cycles. This was verified by modern-day economist Fred Harrison, who added that economic recovery occurs with a gradual rise lasting 7 to 8 years and then a rapid rise for another 7 to 8 years. This is then followed by a fall that lasts 2 years before the cycle starts again.
Using this theory, we can then say that the sellers market lasts for 14 to 16 years. Even if we take into account other factors such as the causes of shortages in the market, the 2008 crash, and the COVID-19 pandemic, it is still in line with the 18-year cycle theory.
Indicators of a Sellers Market
To figure out whether the area of your interest is in a real estate sellers market, you need to look for the following signs:
- There are fewer homes listed than there were sold last month;
- Residential properties generally have been selling above the asking price;
- Houses are selling faster, usually less than 4 weeks; and,
- Home prices have been increasing over the month, quarter, or year.
Pros and Cons of a Sellers Market for Investors
Investors are not recommended to buy a new property in a sellers market because of the following reasons:
- You are likely to get a higher interest rate on your mortgage. If the economy is going well, which usually is the case in this market cycle, lenders are not inclined to give low-interest rates to borrowers. And they might increase your rates in case you encounter any issues during the buying process.
- There is less or no time to do your due diligence. Once you find a property that you think is worth investing in, you may not have time to look at the comps. It would be prudent if you put in an offer as soon as possible before someone else takes it.
- Home prices tend to be higher. Because there is a low supply of houses for sale but high demand, sellers can price their properties higher and still make a sale. As the buyer, you might end up getting a smaller return or even incur a loss if you purchase a home at a high price.
- You have a disadvantage in negotiating. In this market cycle, try not to include too many stipulations, or else the seller might not choose your offer.
Even if this market cycle is a huge disadvantage to investors looking for a new property, it might also present an opportunity for them. If you notice an area that has just shifted to a sellers market, this is the perfect time to buy a home that you will rent out for the long term. This is because as home prices rise, those who are looking for a place to live in will likely opt to rent instead.
What Market Is It Now in 2021?
Now that you know about buyers market definition and sellers market definition, it is time to apply what you learned in the context of the US real estate market.
Is it a buyers market right now? The short answer is no. This year, most of the US states and cities are in the sellers market. These four main indicators show why is it a sellers market right now:
#1: Housing Demand
Demand for residential properties is usually high in this cycle. In 2020, the number of home sales increased significantly and surpassed 2007 levels. Low mortgage rates plus more work-from-home opportunities that the pandemic created fuelled a rise in housing demand. This has mostly been seen in lower-density suburbs and affordable neighborhoods.
Detached single-family homes continue to be in great demand since they provide greater living space and are separated from adjacent houses than multifamily properties do.
Meanwhile, buying activity has increased for the third consecutive week in November, meaning that demand for housing remains strong despite the approaching holiday season. Usually, December is a slower period for home sales and it will not pick back up until the following Spring whether the area is in a sellers market or buyers market.
#2: Housing Supply
When determining whether the US is in a buyers market vs sellers market, you also have to look at the number of residential properties for sale. As we enter the holiday season, some sellers take their property off the market. As we all know, a decrease in the number of sellers in the market causes the supply of homes for sale to decrease as well.
The housing supply is now at its lowest level since the 1970s due to rising building prices, postponed new constructions, and real estate investors acquiring starter homes.
#3: Days on Market
If you are asking, “is it a buyers or sellers market 2021?”, you also need to check how fast properties are selling. According to the November report from the National Association of Realtors, homes are selling at a rate not seen since the late 1990s. Houses sold from July 2020 through June 2021 found a buyer in an average of one week.
#4: Home Prices
While the average property price has been increasing in the mid-single digits for many years now, it rose by double digits recently. This is the result of a combination of high demand, low supply, and low mortgage rates. Sellers were also able to receive their full asking price, with 35% of them getting more than what they asked.
When Will the Sellers Market End and When Will It Be a Buyers Market Again?
As home prices continue to increase, more and more people–both homebuyers and investors–are getting priced out of the market. Being priced out of the real estate market means that the houses in that area have become too expensive for you. When this happens, homebuyers looking for a place to live will just rent instead of buy. Investors, meanwhile, could wait for the market to become more affordable, build more capital, or consider a different area.
There is also concern surrounding mortgage rates. A mortgage rate is an interest you pay on the money you borrow from a lender to buy or refinance your property. There are two types:
- A fixed-rate mortgage, which locks in your rate for the entire duration of your loan; and,
- An adjustable-rate mortgage, which keeps your rate the same for a predetermined amount of time, then changes it periodically.
Mortgage rates have been creeping upward for the past few months but remain lower than they have been the past five years. As of December 11th, the 30-year fixed rates are around 3%, while 15-year rates are under 2.5%. While mortgage rates have stayed low throughout 2021 and may remain so through the end of the year, we may see them rise in 2022.
So when will the housing market get better for buyers? 2022 might be easier for home buyers, even if it will either stay in the sellers market or move toward a neutral one. But if you want to know when will the housing market become a buyers market, that is still unclear for now.
Will 2022 Be a Buyers or Sellers Market?
For the real estate market to shift from a sellers market to buyers market, it must first go through another cycle, which is called the neutral market. In a neutral market, neither sellers nor buyers have an advantage in the sale. Here are the main indicators of a neutral market:
- The number of homes for sale is average compared to the listings over previous months or years
- Property sale prices are close to or match the original listing price
- The average price of a house is neither increasing nor decreasing
- Homes are selling within 4 to 6 weeks after listing
Putting these indicators in context, the US real estate market is showing signs of movement towards a more balanced or neutral cycle despite the low inventory. The number of properties for sale has slightly increased but remains significantly below pre-pandemic levels and is still unable to meet current demand. But a Realtor survey conducted this fall found that 26% of American homeowners plan to sell their home in the next 12 months.
As for home prices, Freddie Mac forecasts that pricing increase will slow down from 16.9% this year to 7% next year. While this is still higher than the average growth rate of 3% to 5%, this is a sign of the housing market cooling down after an exhaustive couple of years.
Even though many experts are forecasting that the market will cool down, we may not see a buyers market in 2022 unless the overall inventory suddenly exceeds demand.
Tips on Buying in a Sellers Market
Unfortunately, many cities and states in the US are likely to remain in the sellers market for at least 12 more months. But that does not mean you should not invest. Remember, this is also a good time for you to find a rental property since many would-be homebuyers would opt to rent in this cycle instead. So here are 6 tips on how to buy an investment property in a city that is in a sellers market:
#1: Get Pre-approved for a Mortgage
When you are buying a property in a seller’s market, the key is to act fast. So you do not encounter any issues once you find a house that you like, it is best to get pre-approved for a mortgage before even starting your search.
Unlike pre-qualification, getting pre-approved is a more official step in which the lender verifies your financial information and credit history. Here, you will have to submit financial documents such as pay stubs, tax returns, and your Social Security card. Including a letter of pre-approval in your offer adds credibility that you can afford the property you wish to buy.
#2: Use an Online Tool to Search Properties and Do a Real Estate Market Analysis
Because you need to act fast, real estate market analysis is more efficient if you do it online. To accomplish this, you need a useful investment tool like Mashvisor. This platform has helped real estate investors do 3 months worth of research in less than a day.
Using Mashvisor, you can type in any US city or neighborhood that you want to know more about, and you will get an overview of the available investment properties in the area. Our real estate heatmap can help you quickly determine the average cash on cash return in the area and identify parts of the city that can meet your investment needs.
You will also have access to our up-to-date analysis of each neighborhood and listing. Depending on the rental strategy you wish to go for, we can ] help you calculate your earning potential and investment payback based on the average income and expenses in that area. To learn more about how Mashvisor can help you find profitable investment properties, schedule a demo.
#3: Pay Attention to Days on Market
Even if the average house in a sellers market takes less than 4 weeks to find a buyer, you may still find a home that has been on the market for a longer period. The longer a property has been available, the more power you will have negotiating for a lower price or better terms, even in a hot market. Just make sure that you are not about to walk into a money pit before placing an offer.
#4: Make an All-Cash Offer or Propose to Pay Over the Asking Price
In this market, sellers prefer home buyers who are willing to pay in cash so they do not have to worry about the deal falling through due to issues with financing. But if you cannot afford to do that, then offer to pay above their asking price.
How much to offer over asking price in a sellers market? You would want to exceed at least 1% to 3% of the listing price especially when there are competing buyers. It is also important that you include a letter of pre-approval from your mortgage lender as proof that you can afford to pay such an amount.
#5: Focus on Your Dealbreakers
In a sellers market, the buyer is at a disadvantage when it comes to negotiating. This is not the time to push contingencies, ask for seller concessions, or demand specific closing dates or repairs. Instead, only include the stipulations that you would not mind losing a property over.
For example, you may be adamant about including an inspection contingency in the sales contract. This is so you can be sure that you can afford to repair and remodel the property you are buying.
#6: Be Patient and Do Not Settle
When buying an investment property in a sellers market, especially if you cannot afford to pay in cash, you might find yourself losing out on the houses you are interested in. Try not to get frustrated and keep a level head when making an offer.
And do not settle on a property just because it is cheaper or there are no other interested buyers, either. Otherwise, you might end up getting an undesirable home for way more than it is worth, which may result in a smaller investment payback or a significant loss.
5 Best Buyers Markets to Invest in Right Now
Even though the US housing market as a whole is in a sellers market, there are still cities that are currently in the buyers market. Using our investment property analysis, we found five of the best towns and cities in this market cycle that you should consider investing in:
Disclaimer: The Airbnb data mentioned in this article are based on the data we collected from the platform itself and does not automatically mean that Airbnbs are legal in the area. Please contact the appropriate local government to find out any ordinances they may have on short-term rentals.
#1: Woodward, OK
- Median Property Price: $198,853
- Average Price per Square Foot: $95
- Days on Market: 99
- Traditional Rental Income: $1,150
- Traditional Cash on Cash Return: 9.40%
- Price to Rent Ratio: 14 (low)
- Airbnb Rental Income: $1,834
- Airbnb Cash on Cash Return: 6.43%
- Airbnb Daily Rate: $135
- Airbnb Occupancy Rate: 47%
- Walk Score: 49
As of this writing, there are 38 Woodward, OK homes for sale on Mashvisor, ranging from $60,000 to $725,000. In November 2021, the median property price in the Woodward real estate market is $198,853, which is 45% higher compared to the same month last year.
This city is currently in a buyers market mainly because its residential properties sold after 99 days in November 2021, which is higher than last month and last year. Additionally, the homes here sold for 7.63% below the asking price in October 2021. And the price to rent ratio is low at 14, meaning the property prices are lower compared to rental rates.
#2: Roswell, NM
- Median Property Price: $206,422
- Average Price per Square Foot: $101
- Days on Market: 129
- Traditional Rental Income: $1,295
- Traditional Cash on Cash Return: 9.06%
- Price to Rent Ratio: 13 (low)
- Airbnb Rental Income: $1,686
- Airbnb Cash on Cash Return: 5.36%
- Airbnb Daily Rate: $142
- Airbnb Occupancy Rate: 50%
- Walk Score: 69
As of this writing, there are 6 Roswell, NM homes for sale on Mashvisor, ranging from $100,000 to $428,000. In November 2021, the median property price in the Roswell real estate market is $206,422, which is 27% higher than last year.
The city is currently in a buyers market mainly because the houses sold after 129 days on the market in November 2021, which is trending higher than last month and last year. The price to rent ratio is also low at 13, meaning the property prices are lower compared to rental rates.
#3: Lewiston, CA
- Median Property Price: $483,182
- Average Price per Square Foot: $242
- Days on Market: 138
- Traditional Rental Income: $1,500
- Traditional Cash on Cash Return: 8.70%
- Price to Rent Ratio: 27 (high)
- Airbnb Rental Income: $3,272
- Airbnb Cash on Cash Return: 4.31%
- Airbnb Daily Rate: $178
- Airbnb Occupancy Rate: 65%
- Walk Score: 14
As of this writing, there are 10 Lewiston, CA homes for sale on Mashvisor, ranging from $199,000 to $775,000. In November 2021, the median property price in the Lewiston real estate market is $483,182, which is 38% higher than last year. This area is currently in a buyers market mainly because the houses sold after 138 days on the market last month.
#4: New Castle, IN
- Median Property Price: $139,900
- Average Price per Square Foot: $129
- Days on Market: 106
- Traditional Rental Income: $1,200
- Traditional Cash on Cash Return: 8.36%
- Price to Rent Ratio: 18 (medium)
- Airbnb Rental Income: $2,682
- Airbnb Cash on Cash Return: 5.91%
- Airbnb Daily Rate: $599
- Airbnb Occupancy Rate: 68%
- Walk Score: 65
As of this writing, there are 15 New Castle, IN homes for sale on Mashvisor, ranging from $55,000 to $237,390. By December 2021, the median property price in the New Castle real estate market is $139,900, which is 49% higher than last year. The city is currently in a buyers market mainly because the houses stayed on the market for 106 days before selling as of November 2021.
#5: Kearny, AZ
- Median Property Price: $158,580
- Average Price per Square Foot: $120
- Days on Market: 65
- Traditional Rental Income: $1,548
- Traditional Cash on Cash Return: 8.23%
- Price to Rent Ratio: 9 (low)
- Airbnb Rental Income: $2,379
- Airbnb Cash on Cash Return: 1.50%
- Airbnb Daily Rate: $133
- Airbnb Occupancy Rate: 58%
- Walk Score: 26
As of this writing, there are 10 Kearny, AZ homes for sale on Mashvisor, ranging from $90,000 to $630,000. In November 2021, the median property price in the Kearny real estate market is $158,580, 37% higher than last year. The town of Kearny is currently in a buyers market mainly because, as of last month, the houses sold after being on the market for 65 days on average.
5 Best Sellers Markets to Invest in Right Now
As previously mentioned, investors looking for a rental property do not have to avoid sellers markets altogether. You may still be able to acquire a lucrative house that will pay back a huge investment in the long run. Using Mashvisor’s neighborhood analysis, we found the five cities currently in a sellers market that have high earning potential.
#1: Sterling, CO
- Median Property Price: $204,022
- Average Price per Square Foot: $158
- Days on Market: 21
- Traditional Rental Income: $1,850
- Traditional Cash on Cash Return: 6.24%
- Price to Rent Ratio: 9 (low)
- Airbnb Rental Income: $1,228
- Airbnb Cash on Cash Return: 1.80%
- Airbnb Daily Rate: $72
- Airbnb Occupancy Rate: 53%
- Walk Score: 77
As of this writing, there are 21 Sterling, CO homes for sale on Mashvisor, ranging from $130,000 to $845,000. Last November 2021, the median property price in the Sterling real estate market is $204,022, which is 10% higher than last year.
The municipality is currently in a sellers market because aside from the higher home prices, houses sold in November 2021 were on the market for only 21 days. This is trending lower than last month and last year. Properties in this town also sold for 100% of the asking price in October 2021.
#2: Emporia, VA
- Median Property Price: $181,643
- Average Price per Square Foot: $116
- Days on Market: 13
- Traditional Rental Income: $1,341
- Traditional Cash on Cash Return: 6.18%
- Price to Rent Ratio: 11 (low)
- Airbnb Rental Income: $1,763
- Airbnb Cash on Cash Return: 0.97%
- Airbnb Daily Rate: $80
- Airbnb Occupancy Rate: 74%
- Walk Score: 46
As of this writing, there are 17 Emporia, VA homes for sale on Mashvisor, ranging from $69,000 to $350,000. The median property price in the Emporia real estate market is $181,643 as of November 2021, higher by 43% than last year. The city is currently in a sellers market because aside from the increasing home prices, houses sold in November 2021 were on the market for only 13 days.
#3: Rotonda West, FL
- Median Property Price: $482,088
- Average Price per Square Foot: $244
- Days on Market: 25
- Traditional Rental Income: $3,414
- Traditional Cash on Cash Return: 6.10%
- Price to Rent Ratio: 12 (low)
- Airbnb Rental Income: $1,602
- Airbnb Cash on Cash Return: 0.58%
- Airbnb Daily Rate: $158
- Airbnb Occupancy Rate: 44%
- Walk Score: 4
As of this writing, there are 19 Rotonda West, FL homes for sale on Mashvisor, ranging from $142,000 to $850,000. By November 2021, the median property price in the Rotonda West real estate market is $482,088, which is 78% higher than last year.
The community is currently in a sellers market because, aside from the sharp increase in home prices, properties have been on the market for 25 days before selling. The houses also sold for approximately 100% of the asking price as of October 2021.
#4: Momence, IL
- Median Property Price: $185,133
- Average Price per Square Foot: $117
- Days on Market: 21
- Traditional Rental Income: $1,198
- Traditional Cash on Cash Return: 5.63%
- Price to Rent Ratio: 13 (low)
- Airbnb Rental Income: $3,142
- Airbnb Cash on Cash Return: 1.70%
- Airbnb Daily Rate: $171
- Airbnb Occupancy Rate: 60%
- Walk Score: 66
As of this writing, there are 7 Momence, IL homes for sale on Mashvisor, ranging from $78,000 to $247,900. In November 2021, the median property price in the Momence real estate market is $185,133, which is 61% higher than last year. The city of Momence is currently in a sellers market because aside from the sharp rise in home prices, houses were on the market for 21 days before selling.
#5: Doraville, GA
- Median Property Price: $393,243
- Average Price per Square Foot: $243
- Days on Market: 25
- Traditional Rental Income: $2,726
- Traditional Cash on Cash Return: 5.58%
- Price to Rent Ratio: 12 (low)
- Airbnb Rental Income: $3,313
- Airbnb Cash on Cash Return: 5.08%
- Airbnb Daily Rate: $135
- Airbnb Occupancy Rate: 70%
- Walk Score: 67
As of this writing, there are 15 Doraville, GA homes for sale on Mashvisor, ranging from $200,000 to $539,900. The median property price in the Doraville real estate market as of November 2021 is $393,243, which is almost the same as last year.
Despite this, the city of Doraville is currently in a sellers market mainly because its houses are selling fast after being on the market for 25 days. They also sold for approximately 100% of the asking price.
Conclusion
To summarize, the real estate market goes through two main cycles. In the buyers market, there is a surplus of houses for sale, so investors who wish to acquire a property for their portfolio can take their time in selecting a home. Meanwhile, the sellers market features low inventory and high prices, putting buyers at a disadvantage in the sale process. But there is also a third shift, the neutral market, which favors neither buyers nor sellers.
No matter which market you are in, it is important to use a real estate tool to help you find a property with a high earning potential. We get our listing information and data from reliable sources like MLS, Airbnb, and Redfin to give you an accurate analysis. To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.