Buyer’s Market – Seller’s Market?

I am here to bust another myth, just in case you have fallen prey to the national real estate “gurus” who insist upon dumping us all into the same basket. I’ve told you before that there is no such thing as a national real estate market, though these “experts” continue to refer to it. Real estate is a local commodity, affected by local factors, economics, employment, availability of funds etc. Therefore, if the real estate market in Boston is going haywire, it will likely have no effect upon you. As I have written numerous times before, there isn’t a national real estate market; there isn’t even a Pennsylvania real estate market, or a Pittsburgh market. It would be more accurate to say there is a Cranberry real estate market or a Ben Avon market. It is very likely, that regardless of national economic conditions, within the local market there could be hot spots as well as areas of stagnation.

The last time I dealt with this was over the subject of “the bubble.” Without question, in various locations around the nation, real estate values were escalating at an unbelievable pace and no doubt, if you owned real estate, you were quite envious of those sellers in Northern Virginia, Southern California, Florida, where this was occurring. But southwestern Pa has always had a very stable real estate environment, and as stories of rapid devaluation begin to surface around the country, you are probably glad you’re living in good old Pittsburgh, Pa.

So now the experts are on the subject of this “market” becoming a buyer’s market. A definition here may be useful. A buyer’s market occurs when market conditions become more favorable for buyers than sellers. This often occurs when interest rates rise, unemployment increases and/or the number of homes on the market increases – you get the picture. When these sorts of negative market conditions arise more potential buyers are locked out of the market and few buyers are able to make a purchase, therefore turning things to the buyer’s advantage. If, for example, interest rates were to go up, elevating the cost of making a purchase, fewer buyers would be able to afford that purchase. Unemployment has the same effect; with fewer people able to make a purchase, the buyers that remain have more negotiating power. Of course an abundance of homes on the market falls into the law of supply and demand in the most classic sense, too much product, outstripping the demand for the product, causes prices to fall.

When there is a buyer’s market, regardless of the cause, does the buyer have an advantage? Absolutely. Any time that there are more homes for sale than buyers to purchase them; the buyer has the upper hand. If there are two or three homes on the market that suit my needs and it doesn’t matter to me which one I end up with, the seller of any one of these homes is in a weakened negotiating position. Much different than the scenario that puts several buyers with the same qualifications in the market and is searching for the same home when there are few from which to chose.

So the question we have to answer here is, are we currently experiencing a buyer’s market? And my answer is, no, not in the purest sense. Just take a look at the elements I have outlined earlier as contributors to a buyer’s market.

How are interest rates? Pretty great. As I write this rates are in the low 6% range, certainly not high enough to discourage purchasers. How about unemployment? Still remarkably low, no detriment to home ownership. Ah yes, but what about supply? Is it elevated? Perhaps slightly, as this is a seasonal phenomena, but it isn’t elevated enough to send us spiraling into a buyer’s market, unless…

Remember what I’ve said about the local nature of the market. You may find pockets within your community that are either less desirable or for whatever reason, seem to have an unusually high number of homes for sale at the moment. So, in this particular point in time you may have a local buyer’s market. However, at the same time, across town the situation could be reversed. Perhaps there are numerous citizens interested in retirement housing, let’s say single story, quad type units with 1st floor master bedrooms, and then let’s further say that only one developer is constructing this sort of thing. Therefore, demand outstrips supply and voila – seller’s market. So here, you see, we have a buyer’s and seller’s market coexisting within the same community and I believe, in our little neck of the woods, that is the norm.

So do we have a buyer’s market? Not in any significant way. Are there ever-true buyer’s markets? For sure. I remember in the early 80’s when interest rates were approaching 20%, a buyer was an extremely valuable commodity, but that is the extreme case. As we move forward, there will always be degrees of both buyer’s and seller’s market and you should always do your due diligence, studying the market and preparing for whatever is the case. But the purchase of a home is one made with the heart, this is where you will live your life and raise your family, don’t let your head dissuade you. After all you’re are blessed to live here, where your housing mistakes will probably not be very costly, as market crashes here are very unlikely and our stability, though at times boring is always comforting.

Gary Straub is the AVP for mortgage production with Fifth Third Bank of Western PA and has been a real estate professional in the Pittsburgh area for 35 years.