Basically, you've got 3 different types of real estate markets. The type of market depends mostly on inventory, which is the number of homes for sale, and the supply of buyers for those homes. It's known as the law of supply and demand.
Before looking for a home, ask your agent to explain the present type of market to you. If your agent doesn't know or can't tell you, then you might want to look for a different real estate agent.
* A seller's market
This is a real estate market populated by fewer sellers, fewer homes for sale and a larger, proportionate share of buyers. When there are more buyers than sellers, generally this causes home prices to go up. Multiple offers are commonplace in seller's markets.
Logic and common sense tell you it might be smarter to be a home seller in a seller's market and not a home buyer. However, a seller's market is when a lot of home buyers prefer to buy. Why? Because all their friends are buying a home. Everything they read tells them they should buy a home. But the truth is they will pay more for that home than in a buyer's market.
* A buyer's market
This is a real estate market populated by a lot of sellers with a lot of inventory available and very few buyers. Because there are very few buyers and a lot of homes for sale, generally this causes home prices to go down. Simply put, a buyer's market is generally a very good time in which to buy.
In a buyer's market, you may encounter very little competition for that home. Sellers may bend over backwards to meet your demands. Sellers will generally make repairs, give concessions and often they will lower their prices to make a sale. But many buyers feel uncomfortable buying in a buyer's market because the news is so gloomy. Sales are down, homes aren't selling, and that makes buyers cautious.
* A neutral market
A neutral market is when the supply of homes and number of buyers are pretty much equal. Think of it like a seesaw -- neither side is touching the ground because the weight on each side is identical.
In a neutral market, there is generally no urgency to buy because there are plenty of homes to choose from; but sellers are unlikely to discount a price because there are also plenty of buyers vying for those homes.
When is a Good Time for Homebuying?
A good time for homebuying is when a buyer can afford to buy a home, the market is not volatile and affordable financing is available. If a mortgage payment would be just about as easy to make as a rent payment, it might be a good time to buy.
Longevity counts as well; however, I've bought homes in the 1970s, for example, that I held for a year and made a big profit. I've also bought homes in markets with very little appreciation, fixed them up and sold them for a big profit. Examine the profit potential before homebuying. If you can see yourself selling that home a few years later and making a profit, then it's a good time to buy.
If you need to hold that home for a number of years before possibly making a profit or at least covering your costs of sale, then ask yourself if you plan to stay put for those number of years.
* It is possible the tax write-off alone will make homebuying right for you.
* The convenience of being closer to work might make homebuying right for you.
* The comfort of living near friends and relatives might make homebuying right for you.
Most people buy a home because they want to own a home, not because they plan to make a profit. But it's still wise to have an exit strategy.
