DIFFERENCE BETWEEN A SELLER, BUYER, AND BALANCED MARKET
Updated: Nov 10, 2021
By Ali Kaya
Whether you're a buyer or a seller, the market fluctuations are of great importance to you. The difference between the 3 types of markets can have a huge impact on your goals to sell or buy a home. As of the date of writing this, we are in a heavy seller's market. However just 2 years ago we were in a balanced market. What changed? We will go in depth over the differences in each market and what causes them, as well as what they each cause in the local and national economy.
In order to understand the market we need to understand the pillar of a free market; supply and demand! Supply and demand is what makes up every and all economic trades and markets around the world. Whether a stock falls or rises depends on the demand to buy that stock, same as commodities and resources, foods, real estate, etc. When the majority wants a particular thing, and it's relatively hard to come by, prices will rise. If people lose interest, prices will fall. Why is toilet paper so cheap? Because it's not so hard to come by! Why is real estate in major metropolitan areas so expensive? Because the majority of people want a piece of the pie, and there's only so many slices to go around!
So, let's start with a seller's market!
WHAT'S A SELLERS MARKET?
A seller's market is just that; a market that favors the seller. It's that simple! How does this work? Well as mentioned above, it's simple supply and demand. Let's use an easy example. Say you live in a single family home neighborhood, somewhere like Mary Hill in Port Coquitlam. There are 10 homes in the neighborhood but there are 20 buyers, and everyone desperately wants a house. Let's say out of 10 homes there are only 2 that are listed. That competition and multiple offer situation heavily favors the sellers. When competition like this happens, prices generally rise at a big rate. The last time this happened was in 2016, and now again. As Vancouver is a major metropolitan area, prices will always rise historically. I always tell my buyers the common saying, "don't wait to buy real estate, buy real estate and wait!"
Now let's take a dive into what a buyer's market is.
WHAT'S A BUYER'S MARKET?
A buyer's market is the exact opposite of a seller's market. Where the market favors the buyers. How is that possible? Take the exact same example we listed above, now flip it. Say there are 10 homes in the area, and 8 of them are listed. At this time however, there are only 2 buyers for those 8 homes. Due to this, the buyer holds most of the power in terms of negotiations. Don't like my offer? That's okay I'll move onto the next. When this market happens we see prices generally soften or even begin to fall. As Vancouver is now a major globally recognized area I don't see this market happening often, if at all. We will most likely remain somewhere between a balanced and a seller's market.
Now that you know the two ends of the spectrum, let's check out what happens in the middle.
WHAT'S A BALANCED MARKET?
A balanced market is just as it reads, balanced. The inventory to sales ratio is evened out, and the buyer pool is similar to the amount of inventory we have available. When this type of market occurs, which is what we had before the 2020/2021 boom, prices generally stay the same or very gradually rise depending on the area. Most homes may have some competition and there may be negotiation, but in the majority of cases everything is fairly simple. As I always say, while balanced; the market is taking a rest and not running a sprint, but rather a marathon. In any case, buying real estate is always a smart investment!
Real estate is always moving up, there will be off years and glory years, but it continually goes up. Real estate is one of the single biggest ways to create wealth and put yourself and your family in a much better financial decision moving forward. Whether you buy in a balanced, buyer, or seller market, the accomplishment is in buying. I find sometimes people try to 'time' the market or even worse; wait for a crash. You shouldn't try to 'time' the market, you should buy when you're able to and hold on. In Vancouver the reality is we will never go to pre-2015 prices. Ever. Even though the type of market we currently have is an important piece of information to both sellers and buyers, it shouldn't deter you from making a decision.
Thank you for reading this article and I sincerely hope you received some value and insight from it! Please note this is a very simple explanation of what each market is. I generally find that it's easiest to understand using normal English rather than 'economy talk'! Please look around at other articles that may be of value and interest to you and thank you for visiting my website. If you're looking to buy or sell in the Lower Mainland don't hesitate to give me a call. We can have a simple conversation about your goals over a cup of coffee! I hope you have a wonderful rest of your day, talk soon!
By Ali Kaya