One of the primary indicators of market conditions is the level of inventory available for sale. In a buyer's market, inventory tends to be high, with more homes available than there are buyers, typically leading to price adjustments to attract buyers. This abundance of options gives buyers the upper hand, as sellers may be more willing to negotiate on price and terms to attract buyers.
Conversely, in a seller's market, inventory is typically low, with more buyers than there are homes for sale. This scarcity of inventory can lead to increased competition among buyers, driving up prices and leading to quicker sales. Buyer’s tend to experience FOMO (fear of missing out) in a seller’s market.
“ ”
Tracking price trends is essential for understanding market dynamics and identifying whether it's currently a buyer's or a seller's market.
Erin Best
Director of Real Estate & Industry Engagement
What market am I actually in?
Key indicators can help you identify whether you’re in a buyer's or a seller's market, and this information empowers you to make informed decisions in your real estate adventure. When your local real estate board publishes their market updates, some of the data points usually covered are the overall listing inventory for that particular month, the differences in listing volume between the current year and last year, and sales-to-active ratios for that time period.
The interpretation of those data points for March 2024 are summarized nicely by Andrew Lis, Director of Economics & Data Analytics for the Greater Vancouver Realtors (GVR) board:
“If you’re finding the weather a little chillier than last spring, you may find some comfort in knowing that the market isn’t quite as hot as it was last spring either, particularly if you’re a buyer. Despite the welcome increase in inventory, the overall market balance continues inching deeper into sellers’ market territory, which suggests demand remains strong for well-priced and well-located properties."
So what does being in a seller’s market mean? One of the terms you may hear is ‘absorption rate’. In simplest terms, ‘absorption rate’ tells us how fast homes are selling in the real estate market in a certain period of time. It looks at the rate homes are being sold without counting new homes entering the market.
A high absorption rate means homes are selling fast, and sellers can sell their homes quickly and likely for full asking price or more. But it's essential to look at the time period used for this calculation. If the absorption rate is above 20%, it's a seller's market, and homes sell fast. If it's below 12%, it's a buyer's market, and homes sell slower.
For example, if there are an average of 50 available properties and 20 of them sell per month, to calculate absorption rate the formula looks like this:
According to the GVR, “over a sustained period of time, a seller’s market is represented by a ratio of 20% or higher, a buyer’s market is represented by a ratio of 11% or lower an a balanced market rests between 12-19%”.
Based on the percentages we mentioned above, this example tells us that this market is in a seller’s market with a 40% absorption rate.
Does the market change by property type?
You determine the absorption rate for wider market data, but because of the formula’s simplicity it can easily adapt to property type as well. For example, below is GVR’s March 2024 sales to active listings ratio by property type. If you’re looking at condos, that market is going to be very different from that of a single detached family home.
Other data points to consider when assessing what market we are in, include the average number of days on market (DOM), or tracking price adjustments.
In a buyer's market, homes tend to linger on the market for longer periods as sellers compete for a smaller pool of buyers, which is why days on market are good to be mindful of. Conversely, in a seller's market, homes sell quickly, often within days or even hours of being listed. Monitoring days on market can provide valuable insights into the level of demand and competition in a particular market.
Tracking price trends is essential for understanding market dynamics and identifying whether it's currently a buyer's or a seller's market. In a buyer's market, prices may be relatively stable or even decreasing as sellers adjust their pricing strategies to attract buyers. In contrast, in a seller's market, prices tend to be on the rise as high demand and limited inventory drive up competition among buyers.
Regardless of what market you’re buying or selling in, ask your real estate agent to explain these market data points to help make the best decisions for you.
