Buyer’s Market vs Seller’s Market: A Guide to Decoding Market Conditions

Seller’s market: The odds are in your favor

In a hot real estate market, there are fewer homes on the market than there are buyers. Eager buyers queue up to bid on homes, pushing prices up until the supply catches up with the demand or the demand decreases. Here’s a detailed overview of what a seller’s market looks like in the real estate world and what it means for sellers:

Market conditions

Sellers can expect the benefits of buyers clamoring for their home: higher sales prices and shorter marketing times.

Home prices rise

In a seller’s market, buyers compete for a limited number of available homes. That competition between buyers pushes bid prices up, leading to higher home values. During the hot housing market between 2002 and 2007, average home prices jumped by 42%, according to data from the U.S. Federal Housing Financing Agency (FHFA).

Homes sell faster

Sellers can expect to receive offers faster in a seller’s market than in a buyer’s market. That’s because buyers must make decisions quickly when competing against other buyers, says Rock. “[Buyers] need to decide while [they’re] in the home. Are [they] making an offer, and how quickly can [they] get that offer in the listing agent’s hands?”

The number of days on market (DOM), which marks how long a home is on the market before the seller accepts an offer, typically drops. In a balanced market, marketing time typically lasts around 30 to 60 days. In a strong seller’s market, that figure can plummet to 20 days or less.

Bidding wars are more common

In a seller’s market, demand exceeds supply, leading to fierce competition among buyers. With fewer homes available, multiple buyers often submit offers on the same property, sometimes driving the price above the asking amount.

This can result in bidding wars, where buyers try to outbid each other to secure the home. Sellers benefit from this dynamic, as they can often choose the highest or most favorable offer with better terms.

In some cases, buyers may waive contingencies or offer cash to strengthen their bids. This fast-paced environment can be stressful for buyers but highly profitable for sellers. As a result, homes in a seller’s market often sell quickly, sometimes within days or even hours of being listed.

Factors that lead to a seller’s market

What makes buyers house-hungry? And why aren’t there enough homes to appease their appetites? A strong economy, reticent home sellers, and lagging new construction all contribute to a seller’s market.

Too few resale homes for sale

When enough homeowners decide to stay put, the lack of resale homes on the market contributes to an inventory shortage.

This trend has been particularly noticeable among older homeowners, who often opt to remain in their homes rather than sell and downsize. These homes staying off the market can add to the housing shortage, showing how generational choices affect the overall supply.

New builds aren’t keeping up

According to the recent U.S. Census report, the country’s population grows by one person every 21.2 seconds. As the population increases, so does the need for new housing. But when new builds can’t keep up, whether due to labor and lumber limitations or land shortages, the result is the same: fewer homes for buyers to choose from.

Increased buyer demand

The greater the buyer demand, the greater the competition for homes. Here are a few factors that bring buyers to the market:

• Low interest rates: These make owning a home more affordable, making homeownership more attractive and increasing buyer demand. When interest rates are low, buyers pay less to borrow money, and with lower interest fees, buyers can afford a higher-priced home.
• Strong local economy: A strong local economy with growing industries and new job opportunities can drive up homebuyer demand. When big companies or well-known business leaders move to a city, they often bring a wave of jobs, drawing in new residents looking for work.

As more people move in, the demand for housing rises, pushing up home prices and competition. This is especially common in booming tech hubs and fast-growing cities. A thriving job market can keep the real estate market hot for years.

• Swings in generational demand: Shifting trends among age groups can impact the number of overall buyers searching for a home. Millennials, for example, make up the largest segment of the population in the U.S. as of 2023. The National Association of Realtors (NAR) reports that millennials were the largest demographic of buyers, accounting for 38% of home purchases, a significant increase from 28% in 2023.

Bottom line for sellers

Listing your home during a seller’s market puts you in an ideal position. You’re more likely to sell your home quickly and at a higher price. But remember: you’ll be in the buyer’s shoes when it’s time to shop for your next home.

Your home may sell faster. In a seller’s market, there’s a good chance you’ll have to move out of your house sooner than you think. You’ll have less time to pack, book your moving company, and find a new home. To avoid the stress of a last-minute move, start planning early on.

You’ll sell your house for more money. With competing buyers and rising home prices, you could net more than what recent sales in your neighborhood suggest. If you’re looking to move, a seller’s market is a great time to cash out on your home equity. Your bank account will thank you.

You have more leverage in negotiations. Price isn’t the only way buyers can sweeten the deal on an offer. When multiple buyers battle it out for your home, you can negotiate fewer contingencies and better terms. They often take extra steps to make their offers stand out.

In some cases, they may waive home inspections and financing contingencies to speed up the process and appeal to sellers. Additionally, buyers might offer deal sweeteners, such as a seller rent-back agreement, which allows the seller to remain in the home temporarily after closing. These strategies are especially common in fast-moving real estate markets with limited inventory.

You may receive multiple competing offers. In a hot housing market, buyers can face serious competition, with multiple offers coming in for the same home. Sellers might get several bids, sometimes sparking bidding wars and pushing prices higher. When there are more buyers than available homes, people have to move fast and make strong offers to land a deal.

As a seller juggling competing offers, you have multiple options for responding. You could choose the “highest and best” offer based on the strength of price and terms and reject the others. Or you could counter back and attempt to negotiate with one or more of the offers you receive.

Evaluating the pros and cons of each could be tricky. An experienced real estate agent can help you navigate your choices for the best strategy to sell your home, such as helping you evaluate the strength of an offer beyond its price.

You may have a hard time finding your next home if you plan to buy. If you’re staying local, you’ll find yourself on the other side of the bargaining table when it’s time to look for your new place. Budget extra time for your home search in a seller’s market. There’s a chance you won’t be the winning offer on the first house bid for.

Buyer’s market: Your buyer has the upper hand

In a buyer’s market, the balance shifts when the number of available homes exceeds the number of buyers who want to purchase them. Like a clearance rack overflowing with last year’s clothing trends, homes are more likely to sit on the market because of low buyer demand.

In this market type, conditions favor buyers who have more leverage in negotiating an offer for a house. As you consider whether you’re in a buyer’s vs seller’s market, these are the things you can expect to see as a seller when buyers hold the cards:

Market conditions

In a buyer’s market, buyers won’t snap up homes the first weekend they’re listed for sale. Prices can flatten or fall, and you’ll be thankful for every offer.

Home prices may fall

Less competition among buyers, along with an ample selection of homes, can lead to a decline in home prices. In 2008, Case-Schiller reported a record 18% year-over-year drop in its home price index when a glut of homes overwhelmed buyer demand during the Great Recession.

Homes sell slower

Buyers take their time because there’s no sense of urgency like you’d see in a seller’s market, explains Rock. When buyers see a home they like, they “don’t rush in two hours after it’s listed.” In fact, buyers are likely to tour a home multiple times, bringing family or a contractor friend for outside opinions. “People might take a week or two to even make a decision on a house,” Rock adds.

In contrast to a strong seller’s market when sellers may accept a contract in days, sellers can expect their homes to sit on the market for more than a month.

Offers may be few and far between

Unlike a strong seller’s market, when multiple offers tend to come in quickly, offers in a buyer’s market are more likely to trickle in. Rock advises homeowners in a buyer’s market to closely consider the first offer that comes in the door.

In her opinion, the first offer is typically your best offer in a buyer’s market. “If someone makes you an offer quickly in the first few days on the market, they probably are a motivated buyer,” Rock explains.

Factors that lead to a buyer’s market

The market shifts to a buyer’s market when there are more homes for buyers to choose from and less competition to contend with. These factors can swing the market away from a seller’s favor:

Surplus of resale homes and new builds

A flood of homes for sale gives homebuyers more options. During the Great Recession, an influx of short sales and foreclosures added to the existing resale supply. Before the bubble burst in 2008, construction housing starts topped out at 2,273,000 in January 2006, compared to 490,000 in January 2009.

When inventory outweighs demand, you have a slow market where sellers must compete for buyers’ attention, often leading to price reductions and longer days on market. New construction homes can further contribute to this surplus, especially when builders overestimate demand and flood the market with properties.

In such conditions, buyers gain leverage, as they can negotiate better prices, request repairs, or even ask for seller concessions. Homeowners looking to sell may need to adjust their expectations, as bidding wars become rare and multiple offers become less common. Ultimately, an oversupply of homes can shift the power dynamic in favor of buyers, creating opportunities for those looking to purchase at a lower price.

Lower buyer demand

Low buyer confidence and economic uncertainty can prevent potential buyers from entering the market, leaving little competition for the smaller pool of homebuyers that remain. Elevated borrowing costs and a market slump are some of the factors that keep buyers at bay.

High interest rates

Rising interest rates make it more expensive for buyers to borrow money for a mortgage loan. First-time buyers and those on tighter budgets are often pushed out of the market entirely, reducing overall demand.

In the early 1970s, the U.S. Federal Reserve attempted to control rising inflation by increasing interest rates. From February 1972 to September 1973, the federal funds rate more than tripled, and home sales plummeted by 50%.

As rising interest rates dampen demand and ease competition, buyers gain more negotiating power.

Widespread recession

Historically, homebuying often tumbles during a recession, a period marked by increasing unemployment rates, lower spending, and stagnant income levels. When job security becomes uncertain, many potential buyers put their homeownership plans on hold, leading to a drop in demand.

Tighter lending standards may also make it harder for buyers to qualify for mortgages, further slowing the market. As a result, sellers may need to lower prices or offer incentives to attract hesitant buyers. Over time, this shift can create a buyer’s market, where those who are financially stable have more negotiating power and better deals.

Local economic downturn

When a local economy suffers, the effect ripples into housing. Fewer jobs hamper buyer demand. This is because fewer people have stable incomes to afford to buy a home.

Moreover, high unemployment can also lead to more foreclosures, as homeowners struggle to keep up with mortgage payments. More foreclosures increase the housing supply, which drives prices down.

Bottom line for sellers

Sellers don’t have the same advantages in a buyer’s market as they do in a seller’s market. Not only will you need to make your home shine, but you’ll also need patience and flexibility to snag a buyer. The good news is that finding your next home won’t be as tough.

• Your home could sit on the market for several weeks: Since buyers have an abundance of options, they can take their time comparing homes and negotiating better deals. Aside from the extended time on the market, Rock says, “You might […] do a price reduction if you don’t have any offers in that time period.”
• You’ll need to make your home stand out against the competition. When you’re competing against other sellers, “you need your house to look pristine,” stresses Rock. Expect to invest more in staging, curb appeal, and light cosmetic upgrades. For instance, Rock says sellers may want to look into repainting or re-doing floors. More extensive work, like a kitchen refresh or roof replacement, could be the ticket to attract a buyer in a competitive market.
• Your buyer has more leverage in negotiations. Don’t expect a full-price offer when you’re selling in a buyer’s market. Rock says that you’re more likely to receive offers that are lower than your listing price. “We’d be lucky if it was 95% of the list price,” she notes.
• You’ll have an easier time purchasing your next house after you sell. While selling in a buyer’s market can be a battle, you’ll benefit from the same market conditions when you buy your next place.

How long does a seller’s or buyer’s market last? It depends

Unfortunately, there’s no crystal ball to tell us how long a buyer’s or seller’s market will last. Economic factors and world events influence the state of the real estate market. Additionally, unforeseen circumstances, such as the COVID-19 pandemic, can disrupt market trends and defy expectations.

Studying historical real estate cycles could provide some insight. Looking at phases in the market since the early 1800s, one economist found that most real estate cycles happen in 18-year periods.

In line with this theory, economist Fred E. Foldvary predicted the 2008 housing crash, which resulted in the Great Recession. Still, the 18-year cycle theory isn’t foolproof. Two outliers proved the exception: a period during World War II and a severe interest rate hike in the 1970s.

Selling soon? Market conditions matter

You can’t predict the future, but knowing which way the real estate market is leaning can help you make the right decisions for your home sale. If you’re in a seller’s market, you’ll benefit from buyers vying for your home. In a buyer’s market, expect to work harder to sell your home for a solid price.

To navigate these market conditions smoothly, work with a knowledgeable real estate agent who can walk you through the process and help you get the best deal.

Header Image Source: (Artazum / Shutterstock)