Almost a decade after the 2008 financial crisis, U.S. home prices have climbed well out of negative territory. Looking back, it’s hard to believe that median home prices nationwide fell nearly 32 percent from a peak of $229,000 in July 2007 to $156,100 in February 2011. That’s a frightening drop. Today looks much different, with Zillow reporting an August 31 U.S. median list price of $254,900.
When is it a seller’s market?
A seller’s market has a lot of indicators, including low home inventory, a growing median list price, and good economic conditions with low unemployment. A good way to determine market status is to find the absorption rate, which is the rate at which available homes will sell over a time period. This simple calculation is used in the real estate industry to predict home prices and future sales. To calculate the absorption rate for a given area, first gather the following:
1. Time Frame (in months)
2. Number of Homes Sold During Time Frame
3. Current Number of Active Homes On Market
First, divide Number of Homes Sold During Time Frame by Time Frame. This equals the Rate of Home Sales. Then, divide Current Number of Active Homes on Market by Rate of Home Sales. This will give the months it takes to sell active homes on the market. An answer of five months or less means home are selling quickly and the absorption rate is high; a seller’s market. Over six months means homes are selling slowly and the absorption rate is low; a buyer’s market. Six months is considered a balanced market.
For example, let’s say in Smallville, 130 homes were sold in 12 months and the current number of active homes on the market is 50. Divide 130 by 12 to get 10.8. Next, divide 50 by 10.8 to get 4.6. Therefore, it will take 4.6 months to sell the active homes on the market in Smallville.
What should a seller do in a seller’s market?
Listing a home during a seller’s market has a lot of benefits, namely, a fast sale. Often, one can get at or above the home’s list price. A seller should be prepared for competitive offers, frequent showings, and a fast move if the home is a primary residence.
What should a buyer do in a seller’s market?
It’s not impossible to buy in a seller’s market, but it can get discouraging. A buyer should consider a number of things. One is a loan pre-approval from a lender. The seller and seller’s agent will not want to waste time showing a property to someone ineligible for a loan. Also, a buyer should be prepared to pay the list price or slightly above. There isn’t much wiggle room in a seller’s market, and low-balling could put a potential buyer right out of contention. Finally, choose a knowledgeable real estate agent in the area. Someone with years of experience across market environments will be a good negotiator and will generally keep his or her buyer’s best interests in mind.
What’s ahead for the market?
Although it’s possible another downturn is ahead, many experts predict a healthy real estate market in upcoming years. In fact, a recent CoreLogic® Home Price Index (HPI™) Forecast™ indicates that home prices will continue to climb, with a 5 percent year-over-year price rise anticipated from July 2017 to August 2018. All things considered, both home buyers and sellers can benefit by learning the dynamics behind market conditions and applying that knowledge to their individual real estate transactions.
Eugene Realty Group has some of the most experienced and caring professionals in the Eugene area. Get more information about the latest market trends, the newest listings, and real estate advice at http://www.eugenerealtygroup.com
David Allred is the author and creator of CFW. David has been teaching entrepreneur minded people how to earn a full time income working from the comfort of home for nearly a decade.
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