SIGNS THAT SELLER'S MARKET IS NEAR
by Eman Hamed, MASHVISOR.COM
In real estate investing, selling an investment property is a very important decision in a real estate investor’s career. After buying and owning an investment property, the only reason you should be selling it is to make the highest profit possible. However, the chances of this happening are only possible if you’re in a real estate seller’s market.
In this article, we’re discussing what exactly a seller’s market is, what causes it, and most importantly, the signs that property investors should keep an eye out for to recognize that a real estate seller’s market is approaching. So, without further ado, let’s jump right in!
What Is a Real Estate Seller’s Market?
In the simplest terms, a real estate seller’s market is when the demand for real estate investment properties is higher than the available supply. In other words, during a real estate seller’s market, the number of property investors looking for investment properties to buy outpaces the number of available investment properties that are on the housing market for sale. The opposite of a real estate seller’s market is, of course, a buyer’s market in which the available supply of investment properties for sale is higher than the number of real estate investors or homebuyers looking to make a purchase.
There are many reasons that cause a real estate seller’s market, most importantly lower interest rates, which attract more property investors to buy an investment property. Other causes of a real estate seller’s market are population and job growth (this increases the number of buyers in the housing market) and government housing assistance programs which make more property investors qualified to buy an investment property.
Now that the definition of a real estate seller’s market is covered, let’s move on to explaining the four major signs that this type of market is approaching!
Signs of a Real Estate Seller’s Market
Real Estate Seller’s Market: Lower Months of Inventory
Out of all the signs in this guide, months of inventory (sometimes also called the absorption rate) is the most accurate and most important predictor. Basically, months of inventory allows a real estate investor to determine how many months it takes to sell all listings in a certain housing market at the current selling rate if no more investment properties were listed.
Real estate experts have estimated that the average months of inventory is about 6 months. Thus, when the amount of inventory begins to decline from 6 months (meaning it would take less than 6 months to sell all property listings), then you’re in a real estate seller’s market! On the other hand, if you’re in a housing market with months of inventory of more than 6 months, then you’re in a buyer’s market.
One important point to keep in mind, however, is that when a real estate investor is tracking how much inventory is available, he/she should do it by specific area and price. Why? Well, it could be that the same market is experiencing a real estate seller’s market in the lower price ranges and, at the same time, having a real estate buyer’s market in the upper price range.
Real Estate Seller’s Market: Decreased Days on Market (DOM)
Days on market means for how long a single investment property listing stays on the market for sale, or, in another words, how long it takes until it’s sold. This is a quick way to spot market shifts. Property investors should check this number at least once a month. When you start to notice that days on market is starting to drop dramatically, you’ll know that a real estate seller’s market is approaching! A decrease in days on market is closely related to fewer months of inventory – investment properties are being sold quickly, thus it’s a real estate seller’s market.
Real Estate Seller’s Market: Multiple Offers
Another hallmark of a real estate seller’s market is multiple offers. If you’re a real estate investor thinking of buying a certain investment property, and you notice that the seller obtained a number of offers for this single listing (demand is higher than available supply), this means you’re in a real estate seller’s market. Therefore, property investors should check listing services and take note when they start seeing multiple offers for a single investment property as this is a major sign that a real estate seller’s market is approaching.
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Real Estate Seller’s Market: Rising Prices
All the above-mentioned signs lead to our final hallmark of a real estate seller’s market, and that is rising prices for investment properties. As multiple offers increase, and days on market decrease, a savvy real estate investor will start to notice that investment properties’ prices will start to increase. This is simply the good old law of economics: higher demand = higher prices. Consequently, when properties are selling at close to asking price or more, your real estate seller’s market has arrived.
What Should Sellers and Buyers Do in a Real Estate Seller’s Market?
Judging by its name, this type of market is on the seller’s side. It gives property sellers the opportunity to be selective and choose whichever offer makes the highest profit when selling investment properties! Thus, if you’re a real estate investor considering listing your investment property on the housing market for sale, you must do it at the first sign of a real estate seller’s market.