Highlights from this report:
- There has been a lot of buzz about real estate buyer’s markets lately.
- But most cities across the U.S. aren’t quite there yet.
- HBI sees buyer’s market conditions making a strong comeback in 2020.
Do a Google news search for “real estate buyer’s market,” and you’ll see plenty of recent chatter about how market conditions are changing. And it’s true — to an extent. In some cities across the country, local housing markets are starting to favor buyers over sellers.
But it’s a bit premature to say that we are experiencing a nationwide buyer’s market, as of early spring 2019.
The truth is that housing inventory in many U.S. cities is still constrained right now, and that prevents a classic real estate buyer’s market from developing.
With that being said, we do expect to see buyer’s market conditions developing in more cities in 2020. It could even become a nationwide trend by mid to late 2020, as supply and demand conditions change.
What Is a Real Estate Buyer’s Market, Exactly?
There is no single definition of a real estate buyer’s market. Definitions can vary from one source to the next. But most economists and housing analysts at least agree on a loose definition of the term.
In short: A real estate buyer’s market occurs when the local supply of homes for sale exceeds the demand from buyers within the same area.
Some economists go a step further by assigning a numerical value to the term. Many say that a “balanced” real estate market has roughly a six-month supply of homes for sale. In theory, that means it would take six months to sell all homes currently listed for sale — as long as no new properties came onto the market in the meantime.
(It’s unlikely that such a scenario would ever occur. It’s really just a way of measuring housing stock, comparing one market to another, etc.)
- When supply falls well below the five to six-month level, you begin to have a real estate seller’s market. There are more buyers seeking a home than there are properties for sale. Under such conditions, homes tend to sell quickly and often above the initial list price. Multiple offers and bidding wars are common as well.
- But when supply meets or exceeds the threshold mentioned above, a real estate buyer’s market tends to develop. In this scenario, homes listed for sale tend stay on the market longer. Price reductions are more common, and sellers are generally more motivated to land an offer.
There’s no doubt that some cities across the U.S. are starting to shift from a seller’s to a buyer’s market. Just last week we reported how inventory is rising within Chicago’s real estate market, creating favorable conditions for buyers. That’s one example of a major city that will probably meet the “definition”of a buyer’s market in the very near future.
Other cities across the country are experiencing similar trends right now. But they represent the exception rather than the rule.
As we head into the spring home-buying “season,” many housing markets across the country still have less than a six-month supply. A large percentage of those fall below the four-month threshold.
Some real estate markets — like Denver and Seattle — have even less housing supply right now. In those areas, sellers still tend to have the upper hand.
Economists Point to 2020 as a Turning Point
In August of last year, real estate researchers from Zillow said that home sellers would continue to have more negotiating leverage throughout 2018 and 2019. They also predicted a turning point in 2020.
This was based on a quarterly survey that went out to more than 100 real estate economists and experts nationwide. That survey asked for “their predictions about the U.S. housing market, including when they expect the market to favor homebuyers over sellers.”
Three out of four economists who participated in the survey said that in their view the nation’s housing market “would not shift to a buyers market until 2020 or later.”
This turning point won’t happen all at once. As mentioned above, some markets are already starting to move in that direction. Others will continue to favor sellers for a while longer, mainly due supply shortages.
Home Prices Rising More Slowly in 2019
Another trend we’ve seen (and reported on in the past) is a general slowdown in home-price appreciation. In cities across the country, house values are rising more slowly now than in the past few years. This trend could carry through 2019 and into 2020.
The median home value in the U.S. rose by about 7% to 7.5% over the last year or so. (Different sources report different figures.) But most of the projections and forecasts for the next 12 months predict growth somewhere in the 5% range.
The slowdown in home-price growth is even more pronounced in formerly red-hot real estate markets that have cooled over the past year.
Slowing appreciation is another sign that a real estate market is moving from a seller’s to a buyer’s market. And that stands to reason. When housing supply exceeds demand (as is the case in a buyer’s market), home prices tend to rise more slowly.
The bottom line here is that housing prices in most U.S. cities are still rising, and will likely continue to climb through 2019 and into 2020. But they are doing so at a slower pace in many cases.
The Need for Localized Housing Market Research
The news media often report about “the real estate market,” as if it were a single entity. But that’s not the case. Housing market conditions can differ greatly from one city to the next, even within the same state.
Consider the difference:
- In March 2019, Zillow predicted that home values in Dallas, Texas would “rise 11.6% within the next year.”
- During that same month, they wrote: “Seattle home values have declined -2.4% over the past year and Zillow predicts they will fall -0.2% within the next year.”
Here we have two simultaneous but very different forecasts. One metro-area housing market is predicted to see double-digit price growth over the next year, while the other is expected to depreciate further.
This underscores the importance of localized research. It also help us understand why some cities become “buyer’s markets” long before others do. Supply-and-demand dynamics tend to vary by geography. And so do all other real estate-related trends.