How is the Real Estate Market? And What Does It Mean to You?

How is the Real Estate Market?

I don’t think there is a real estate agent in the world that isn’t at a neighborhood party, a family event or business function that doesn’t get asked “How is the Real Estate Market?”

In this article, we will discuss what the real estate market really is and how it functions. 

But let’s really put it into perspective.  When you ask “How is the real estate market?” You are generally asking “How is the real estate market pertaining to me?” 

Different markets mean different things to different people.

A seller wants a red hot seller’s market. 

A buyer wants a hot buyer’s market. 

Most agents want a neutral market. 

But believe it or not if you are a home seller moving up you will probably want a buyers market and prices to be down and if you are seller downsizing you want a seller’s market!

No matter what my response is to “how is the real estate market?” someone is going to be disappointed depending on why you are asking!

How is the Real Estate Market Determined?

Absorption rate in the real estate market is one huge determining factor of how the market is doing.  This is how many months supply of inventory is on the market if no other properties hit the market.  Lets take a look at the Tewksbury MA Real Estate Market.

• There are currently 37 residential units for sale on the market in Tewksbury MA.
• In the past 6 months 79 units sold for an average of 13 units per month.
• Divide 37×13 and that shows we have roughly an absorption rate of 2.8 months… meaning it will take 2.8 months to sell the current inventory.

The absorption rate for the overall Tewksbury Market is 2.8 months.

What is a balanced or neutral market:

A balanced market is when the absorption rate is between 5 to 6 months.  It gives buyers time and plenty of inventory to buy the right house and sellers can reasonable expect to find a buyer in that time frame if their home is competitively marketed and priced.  A neutral market see moderate appreciation of 1-3% a year.  Generally no one is advantaged or disadvantaged in a neutral or balanced market.

What is a seller’s market:

A seller’s market is defined as a real estate market with an absorption rate below 5 months.  This shows that inventory is low and there is much pent up demand from home buyers.  Home buyer’s are disadvantaged and seller’s start to control the process as you get deeper and deeper into a sellers market.

What is a buyer’s market :

is when the absorption rate is above 5-7 months.  There is more housing inventory than there are buyers.  Home seller’s are disadvantaged and home buyer’s start to control the process as you get deeper into a real estate market.

Given the absorption rate is 2.8 months in Tewksbury  we can pretty much say Tewksbury is a a hot sellers market.  Remember that absorption rate includes from the moment a property hits the market to the time it closes.  A typical closing is from 45 to 60 days.  That means properties are going under agreement in under a month with many going under with in days of hitting the market.

The other factors to look at are the days on market rising or falling? And, are median house prices rising or falling.  This will give you an indication of which way the market is heading.

Why is it important to Understand How the Real Estate Market is Doing?

It is critically important to understand how the real estate market is doing whether your a buyer or a seller.  Depending on the condition of the real estate market it will dictate how you act and react during the buying or selling process.

The Sellers Market

Of course the sellers market is beneficial to the seller.  As one party gains control of a market it means that they have a leg up on the other party.  As of today most of the markets I serve are in a sellers to hot sellers market. 

Sellers can be picky and demanding.  Many sellers find themselves with multiple offers with in days of listing.  If you give a seller a hard time during home inspection or have too many contingencies in your offer they will say step aside there are three more home buyers after you!!

Buyers need to be diligent about getting into the good properties and make split second decisions.  You may have to pay over asking as you find your one of many offers and give up normal contingencies in your purchase contract.  Be demanding on home inspection issues and you may be kicked to the curb. 

There will be very strong competition for good homes among home buyers and you need to be prepared to step up to the plate.

The Buyers Market

Alternately a Buyers Market puts home buyers in the drivers seat during offers and negotiations.  They can ask for contingencies and may insist on the inclusion of personal items.  When it comes to home inspections they may give you a laundry list of items to repair knowing if you don’t the next seller will.  Home buyers have choices and time there is not urgency to buy your home.

Home sellers will feel the need to meet the buyers demands as they usually they have their own timeline they want to meet.  There will be other homes that will suit the buyers needs and your house will not stand out.  You will have to meet your buyers demands.

The Neutral Market

A neutral market favors neither party and the spirit of negotiations really kicks in.   Neither party will feel like they are backed into a corner or feel particularly rushed in most circumstances.

Things To Know About Real Estate Markets

Real state markets can be complicated and I can cover way more than I am covering in this article.  But I would like to cover a few points that home buyers and home sellers should be aware of about real estate markets.

1. Real estate markets are hyper local. You can have one town that is doing well and a neighboring town doing poorly.  It can even go farther than that and you can have two sections of town performing very differently. 
2. Real estate markets can be segmented in even a hyper local market.  Different price points can be reacting differently even in the same hyper local market.  Take the Andover MA Real Estate Market.  In the past 6 months the absorption rate has been 2.4 months in the $300k to $500k price range while the $800k to $1.4mil price range was 5.3 months.  The difference of a hot sellers market vs a more balanced market for the higher price range.
3. Real estate markets are good for one day only.  Ok so this may be extreme but in general this statement can be true, a real estate market can turn on a dime.  We can have a very flat winter market than the spring hits and the market gets crazy! or vice versa.
4. Buyers and Sellers perception of the real estate market is usually lagging.  I find that buyers and sellers perception is based on data that is 6 months to a year old and see number 3!  Data gathered is generally a lagging indicator to begin with and most buyers or sellers rely on old information.
5. Understanding the real estate market your in is important.  The real estate market you are in will set the tone for your entire time in the real estate market.  I have had sellers in a buyer’s market expect to sell there house in 3 months…. listed to close, when the absorption rate is more like 7 months!  Understanding the market data helps give you a realistic perspective and provide a realistic plan.
6. You have no control of real estate market conditions.  Real Estate Markets are what they are, you can’t control them.  Nor should you try to time them, they are fairly unpredictable.  The time to buy or sell the time you need or want to buy or sell.  Waiting for a market to change can lead to trouble… serious trouble.
7. Nobody can predict where the market is headed.  Like the stock market no can really predict where the real estate market is headed over a period of time.  If you could there would be a ton of people getting rich.

Final thought on “How is the Real Estate Market?”

Understanding the real estate market you are about to enter is critical in setting realistic expectations whether you are a buyer or seller.  It will dictate what you have ahead of you in buyer or seller expectations, how you look for homes, how you negotiate offers and home inspection issues. 

Since post World War ll the real estate market has been in a steady incline either matching or slightly beating inflation.  But during the incline it does cycle up and down.  Think of buying real estate in terms of decades and not two or three years.  The true benefit of owning a house is over time, seeing long term appreciation and paying down your house until you own it outright!

A good listing agent or a good buyer’s agent will educate you on current real estate market conditions and how to proceed pertaining to your specific needs and goals.

Other Real Estate Market Resources:

• Nerd Wallet-  Understanding Your Housing Market
• Xavier Debuck-  Signs Your Home May Be Overpriced in a Sellers Market
• Teresa Cowart-  Sweetening Your Offer in a Red Hot Seller’s Market
• Bill Gassett-  Selling Your Home in a Buyer’s Market
• Lynn Pineda-  What is a Seller’s Market?

Want to know how the Real Estate Market is doing in Your area? Real Estate Services in the following areas: Northeast Massachusetts, Merrimack Valley, North Shore and Metrowest. Including the following communities and the surrounding area- Amesbury, Andover, Billerica, Burlington, Chelmsford, Dracut, Groveland, Haverhill, Lowell, Melrose, Merrimac, Methuen, Middleton, North Andover, North Reading, Reading, Stoneham, Tewksbury, Tyngsborough, Wakefield, Wilmington, Westford