What is a Buyer’s vs. Seller’s Market in Real Estate?

How do you define a buyer’s market vs. a seller’s market in real estate? The simple answer is that when there’s more supply than demand, it’s a buyer’s market and when there’s more demand than supply, it’s a seller’s market.

Demand in real estate is commonly judged by months of inventory based on closed sales.

Buyer’s Market = 6 or more months of inventory

Seller’s Market = Less than 3 months of inventory 

Neutral Market = 3-6 months of inventory

So What Does Months of Inventory Mean?

Months of inventory takes into account the number of homes for sale on the market with recently sold homes and reflects the number of months it would take to sell all homes currently on the market. You can calculate months of inventory by dividing the total number of homes for sale over the number of homes sold in one month.

When months of inventory are low, it’s a fast-paced market dominated by buyers and few sellers. When months of inventory are high, there are generally more homes on the market (dominated by sellers) with fewer buyers or sales.

Our Southern California Real Estate Market

Affordable homes within Southern California, AKA anything priced below $500,000 moves lightning-fast on our local real estate market. For that reason, the housing market for starter homes in SoCal specifically almost always can be defined as a seller’s market. Reviewing trends for Orange, LA, Riverside, San Bernardino, and San Deigo counties will help identify larger shifts in the market as they emerge. While each county, city, and even neighborhood is completely different, overarching trends will help you determine not only where the market has been, but where it’s heading next.

The basic principles of supply and demand drive everything including the real estate market. When housing supply is limited then prices will naturally rise, and that’s what’s been happening over the last decade as we are in the midst of a housing crisis across the country.

Your Neighborhood Market

A buyer or seller’s market can even be calculated on a neighborhood level. For example, if you see that there are 50 homes for sale in January, but only 10 actually sold, this means there are 5 months of supply in your area if only 10 homes sell for each month and no new homes came onto the market.

If you need help calculating months of inventory and what kind of market your local area is experiencing, reach out to a First Team agent. Equipped with the latest tools and systems, our agents have the power to run any stat you need to know about the Southern California real estate market.

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