Difference Between A Sellers Market, Buyers Market and an Even Healthy Market
I keep hearing people, including lenders and Realtors telling people that we are now in a buyers market. I'm even hearing this on tv commercials, radio ads and all over social media. I just wanted to write up a short blog post explaining the differences between the three types of markets, sellers, buyers and an even healthy market.
In Real Estate there are a lot of different terms, ratios and calculations that can get confusing at times to know what they mean. However, when talking about which of the three markets we are in it is very simple. The type of housing market we are in always has to do with one number. And that number is Months of Inventory.
Months of Inventory (MOI) is the relationship of sales pace to the number of properties currently on the market if no additional homes were added to the supply. It is calculated by determining the number of homes sold per month and dividing by the total number of properties for sale on the last day of the month
The graphic above shows how many months of inventory equates to what type of market we are in.
Sellers Market = 5 and below months of inventory
Healthy Market = 5-6 months of inventory
Buyers Market = 6 months and above of inventory
The graphic below shows the months of inventory we are currently in, plus some other housing stats for the month October 2022.
As you can see we are currently at 1.6 months of inventory, which is nowhere near a buyers market. We are also nowhere near a healthy stable market. What these three different markets mean for you.
Sellers Market
Typically the lower the MOI the higher home prices go up. This is just because of simple supply and demand. Over the last three years homes prices have gone up around 50%. This was due to a combination of COVID and record low interest rates. Most people think this was great for the housing market, but honestly it wasn't. It was good for a few select people, but unless you were looking to sell and didn't have to buy another home, it really wasn't good for anyone.
Buyers Market
In a buyers market you will see home prices start to go down, again just because of supply and demand. In some parts of the country they are already getting pretty close to being in a buyers market. Here in the Midwest we haven't seen this yet, and if we do it'll be a little bit. One good thing about being in the Midwest, if you want to look at it as being good, is that we don't have huge upswings or downswings in the housing market. In a major buyers market, 10 plus months of inventory, is when we start seeing short sales and foreclosures flood the housing market.
Healthy Market
We should be in this market in a few months time, but i'm not sure how long we'll be here, unless something dramatically changes with the economy. This however is the market that's best for everyone. In a healthy market you'll see an increase in value of your home of around 4.5% year over year. This is great for sellers because it makes your home a good steady investment. This is also great for buyers because home prices don't get out of control, like they have been the last couple of year, and buyers can properly prepare and save for a home.