Is it a Buyers’ Market, Sellers’ Market or Balanced Market?
The Housing Markets in Oshawa, Ontario
How to Tell Whether it is a Sellers’ Market, Buyers’ Market or Balanced Market
Author’s Note:
Although the heading of this article specifically relates to Oshawa, the same principles apply to many other geographical areas, particularly, throughout Durham Region of Ontario, such as Pickering, Ajax, Whitby and Clarington.
All real estate markets tend to be cyclical.
They continue to fluctuate depending upon the basic economic concept of Supply and Demand.
Supply is the number of houses currently for sale (Active Listings).
Demand is the number of Buyers currently looking to buy.
Supply and Demand in the housing market depends upon various factors, including:
· interest rates
· employment trends
· new housing construction
· immigration
· local economic conditions
The cycle can be quite different from one geographical location to another and can differ between types of houses, and between different price ranges, within one geographical area.
Sellers’ Market
ü There is more demand (Buyers) than supply (Sellers)
ü This often occurs when interest rates are low
ü Homes sell quickly
ü In negotiations, Sellers are in a stronger position than Buyers
ü Homes sell close to listing price, sometimes above listing price due to competition among buyers
ü Buyers must be prepared, have done their research, and have pre-approval of finance required
ü Buyers must make quick decisions
ü Often there are multiple offers for the same home
ü Buyers need the advice and services of a real estate agent who is independent of the listing agent
ü A Buyer, who has a home to sell, may have to seriously consider taking the risk of buying a new home before selling the existing one
Buyers’ Market
ü There is more supply (Sellers) than demand (Buyers)
ü This tends to occur when interest rates rise
ü Homes tend to sell more slowly and Buyers know they can take their time in making decisions
ü In negotiations, Buyers are in a stronger position than Sellers
ü Due to the lack of competition among Buyers, there is usually plenty of opportunity for Buyers to negotiate on price and other terms
ü A Seller needs the services of a listing agent who knows, and can explain, current market trends, is skilled in marketing, particularly internet marketing, understands how to market the home in relation to its competition, and is an excellent negotiator
ü Sellers have to be prepared to negotiate on price and be open to any recommendations to reduce the listing price
ü A Buyer, who has a home to sell, is well advised not to take the risk of buying a new home before selling the existing one. If the Buyer has to close a purchase before selling the existing home, the mortgage costs could be very damaging.
Balanced Market
ü A balanced market does not favour the Seller over the Buyer or the Buyer over the Seller
ü Supply (Sellers) and Demand (Buyers) tend to be relatively equal
ü A Seller needs the services of a listing agent who knows, and can explain, current market trends, is skilled in marketing, particularly internet marketing, understands how to market the home in relation to its competition, and is an excellent negotiator
How to Tell Whether it is a Buyers’ Market, a Sellers’ Market or a Balanced Market:
Determining the answer to this question in relation to a specific housing market (geographic area, house type or price range) is an art rather than a science.
However, examination of several indicators can provide a good indication.
1. Ratio of Sales to New Listings
One of the accepted methods of determining the status of a specific market is to divide the number of sales made by the number of Listings taken for the period.
The ratio, expressed as a percentage, is an indication of the following:
· More than 60% = Sellers’ Market
· 40% to 60% = Balanced Market
· Less than 40% = Buyer’s Market
Example:
Sales for the month = 70
New Listings for the month = 100
Ratio of Sales to New Listings is 70/100 = 70%
Conclusion:
The ratio is >60% = Sellers’ Market
2. The Absorption Rate
This is also known as the Ratio of Sales to Active Listings.
The ratio is calculated by dividing the number of sales for a specific period by the total of Active Listings at the end of that period.
The ratio, expressed as a percentage, is an indication of the following:
· Over 20% = Sellers’ Market
· 14% to 19% = Balanced Market
· Under 14% = Buyer’s Market
Example:
Sales for the month = 100
Active Listings at the end of the month = 600
Ratio of Sales to Active Listings is 100/600 = 0.17 = 17%
Conclusion:
The ratio is >14% but
3. Inventory Method
The number of months of inventory is also an important indicator of the status of the housing market.
This is a calculation of how many months it would take to sell all active listings at the current rate of sales if no further listings were taken.
This is calculated by dividing the number of active listings at the end of the month by the number of sales for that month.
The answer to this calculation is an indication of the number of months it would take to sell all of the active listings.
The generally accepted interpretation of the resulting calculation is:
· Less than 4 months = Sellers’ Market
· 4 months to 6 months = Balanced Market
· More than 6 months = Buyer’s Market
Example:
Sales for the month = 100
Active Listings at the end of the month = 700
Active Listings/Sales is 700/100 = 7 months
Conclusion:
7 months is >6 = Buyers’ Market
4. Days on Market
This is the average number of days that homes are on the market from the time houses are listed for sale until they are Sold Firm (unconditional)
It is an indication of supply (Sellers) and demand (Buyers); of how quickly homes are being sold.
The generally accepted benchmarks for days on market follow the criteria for interpreting inventory figures:
· Less than 120 days = Sellers’ Market
· 120 days to 180 days = Balanced Market
· More than 180 days = Buyers’ Market
5. Ratio of Sold Price to Listed Price
The average ratio of sold price to price asked (listed) price is an indication of demand for homes related to the listed price.
If a home is listed for $460,000 and it sells for $455,400, the sold price to ask price ratio is 99%.
There are no established criteria for what percentages constitute the relevant markets. However, the higher the percentage, the greater the indication of a Sellers’ Market.
Occasionally, you find a ratio of over 100%. This is, clearly, an indication that there have been a considerable number of sales at prices above the listed price.
That, in turn, is evidence of serious competition among Buyers leading to offers above the asking price.
Conversely, the lower the percentage, the greater the likelihood that it is a Buyers’ Market. The lower percentage indicates that Sellers are willing to negotiate down considerably from their listed price. This is a confirmation that there is an imbalance in favour of the Buyers.
This information is helpful when you are intending to make an offer on a home as it gives a general guideline on the price you may have to end up paying compared to the listed price.
However, it is a guideline only as the figures can vary significantly for individual properties.
Conclusion:
These 5 benchmarks, in most cases, can provide a clear indication of whether the relevant market favours Buyers or Sellers or is in Balance.
If one of the methods is at odds with others, it is worth exploring reasons why it provides a different result.
As previously mentioned, the determination of whether the market favours the Buyer or Seller or is Balanced is not an exact science.
It is always worth working with an experienced REALTOR because they are considering this basic question every day.
Find Houses for Sale in Oshawa, Whitby, Clarington, Ajax & Pickering, Ontario
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If you are thinking of selling, you can also:
ü Search on my website for homes, similar to yours, that would be competition for your home, if you list it for sale
ü Obtain an indication of the market value of your home
For answers to your questions, email me; or call 905-723-5944.
About the Author:
Brian Wiseman LL.B., CIPS, is a Sales Representative with Keller Williams Energy Real Estate Brokerage in Oshawa & , Ontario, Canada.
In his past lives, Brian was a Partner in Legal Practices, specializing in Real Estate and Business Law (not in Family Law!) in Australia and a Principal of a successful Financial Planning Practice in Australia.
After the sale of his business interests in Australia, Brian started a new adventure by relocating to Canada with his Canadian wife.
He is particularly interested in relationships in real estate:
ü when 2 or more are purchasing a property;
ü when a relationship has ended and the home is to be sold – see The Future Focus Method
Brian has completed a basic intensive training course in Dr. William Glasser’s Choice Theory Psychology, upon which The Future Focus Method is based.
Brian is not authorized to give legal advice or financial planning services in Canada.
He is not authorized to provide marriage counselling.
He IS AUTHORIZED to provide real estate advice in Ontario.
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