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

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)