Your Guide to the Housing Market
How’s the housing market these days? It’s a question almost as common as asking about the weather. But do you really know what's going on with the housing market?
If you’re looking to buy or sell a house, you should. The ebb and flow of activity in the real estate market is a major factor in your ability to make a successful offer on a house or find a buyer quickly, and it may even affect how lenders valuate a property leading up to closing on a deal.
To be able to leverage all the details you need to make a confident, smart decision in a transaction, a little bit of knowledge on the current state of the real estate market is a must.
You want to have an understanding of not just how the typical housing market cycle works, but also how your local market is functioning relative to the national market. To help you out, we’ve compiled the basics when it comes to understanding common real estate market lingo, current trends and how to examine the state of housing in your area.
Housing Market Basics
Here’s a breakdown of some of the basics to help you survive a networking conversation with a real estate pro, make it through a news article about your local market or decipher what you’re seeing in your ZIP code.
Buyer’s market definition: A buyer’s market occurs when there are more properties for sale than buyers actively shopping, which gives buyers the upper hand. Homes for sale can be on the market for a few months before the right buyer comes along, and it’s more likely that the seller will be inclined to give in to concessions the buyer requests, such as paying for a new roof or covering closing costs, in order to get the buyer to the closing table.
Seller’s market definition: A seller’s market occurs when there are more buyers than properties available, leading to competition among buyers that brings about bidding wars, buyers placing offers on properties sight unseen and buyers experiencing pressure to put more cash down to get a seller’s attention. In some seller’s markets, the competitive spirit can at times cause prices to inflate beyond the rate of property value growth. When this happens, lenders may catch an inflated price during appraisal and refuse to lend the full amount. In other situations, the market may endure a price correction in which buyers hit their price limit and activity slows until prices return to a more normal level.
Balanced market: Between a buyer’s and seller’s market is a balanced market, where there’s between three and six months of home inventory listed, depending on the area, at any given time. Because real estate tends to run in cycles, a balanced market is most often seen as a transitional period between a buyer’s market and a seller’s market, or vice versa, but it typically lasts for a shorter period of time than either extreme.
The local versus national housing market. Real estate is a highly localized industry, as a result of wide variations among property values, economic statuses and real estate laws that differ from state to state. The housing market in Los Angeles functions very differently from the market in St. Louis, which is why it's important to pay attention to your local housing market if you're looking at factors that will make the biggest impact on your real estate deal.
Looking at the national housing market, you can see overarching trends that take place in many parts of the U.S. and commonalities among the most populated parts of the country. If you’re looking to understand the relative value of your home, though, you should focus your research on your local market.
Also keep in mind that a reported property value is based on the asking price of properties currently on the market or reported appraised values by real estate appraisers. Reported median or average price, on the other hand, is based on properties that have recently sold, which means it is more likely to be accurate when determining what your house can reasonably sell for.
Factors lending to market changes. Because an individual’s ability to buy or sell a home is heavily influenced by his or her personal financial situation, the overall market is often influenced by changes in the job market, consumer confidence, lender regulations and zoning laws.
But with houses being as big and highly valued as they are, real estate typically doesn’t see snap-judgment changes like the stock market does. The relatively slow-moving nature of real estate transactions helps prevent the housing market from crashing on a regular basis.
What happened in the housing market crash. Of course, the housing market can crash – and it did in 2008. After years of lenders issuing mortgage loans with little regard for the appraised value of the properties or the likelihood the borrowers would be able to keep up with payments, the adjustment of interest rates led to mass foreclosures. During the Great Recession, 7 million Americans lost their homes, and many more owed more on their mortgage than their home was worth.
Because the housing market crisis was so widespread, it remains vivid in the minds of many people as they prepare to buy a house, sell a house or invest in real estate. Some in the real estate industry note similarities, like sale prices, in the current housing market to years like 2005 or 2006, which led to the bubble burst. But they also neglect to note the regulatory differences for lenders that are aimed at keeping subprime loans and predatory lending from becoming the norm again.
The Housing Market Now
Once you have the fundamentals of talking about real estate markets down, keep up on housing market news. The housing market shifts throughout the year and cycles through larger trends over several years. Subscribe to my weekly newsletter here and follow me on social media to stay up-to-date on the housing market with FACTS and not just scare tactics.
*Courtesey of US News