Real Estate Market Cycles — What Are They?
I’m sure you’ve heard the phrases “Buyer’s Market” and “Seller’s Market” before. These titles suggest there is an advantage in negotiating power for one party based on the current real estate market conditions. This is true, though the nuance goes far deeper.
While real estate is by and large local, market cycles are overarching, all-encompassing factors impacting each home transfer. Market cycles are similar to the weather; while everyone has to deal with the same conditions, some fair better than others based on their preparation, resources, and goals.
While a snowy blizzard is devastating for many, it is a means of feeding a plow driver’s family. Heavy rain may be an unwelcome disruption to a sporting event, but the farmer going through a drought has been praying for much-needed moisture for months. Same weather, different impact.
Identifying Our Current Market Cycle
Identifying which market we are in is a relatively straightforward process. If supply is higher than demand , we are considered to be in a Buyer’s Market. If demand outweighs supply, we are in a Seller’s Market. Right down the middle? We find ourselves in a Balanced Market.
Understanding the current real estate market is part of the process, but knowing where we are heading is the goal. Let’s say you plan to buy a home in 2023 — a common theme among would-be home buyers near the end of 2022. Many are hoping for a downturn in homes prices and rates. But what happens if everyone jumps back into the market at the same time in earnest? Simply put, demand quickly scales. And if supply does not rise to meet demand, prices will go up, not down.
Taking Advantage of the Real Estate Market
There is a weak point in every market where value can be found. We’ve discussed this in a previous article, so today we are focusing strictly on external pressure. Let’s use some current data as of this writing to paint a picture.
Home Supply – 1 Year
This first graph shows the number of homes available in the Twin Cities over the course of a year. As you can see, even within a year, the number ebbs and flows as months go by. Historically, the slowest time of year is always between Thanksgiving and New Years Day.
This means if you are selling there is less competition, but there is also significantly less demand. Most folks don’t like moving in winter and are busy getting ready to host and attend multiple holiday celebrations. If you want to find value as a buyer, this is a great time of year to do so.
Home Supply – 10 Years
Let’s zoom out a bit and take a look at the 10 year market cycle. This shows an entirely different perspective, as homes are still near the lowest they have been in over a decade. If you were buying a home in 2012, you had plenty of options. This, in turn, suppressed prices as competition was alive and well.
In 2022, you can see a very different situation. There are hardly any homes for sale, which instigated the ferocious surge in prices we experienced over the past two years. Still, markets are historically cyclical, both annually and monthly. Let’s take a look from another view.
Days on Market – 10 Years
See those peaks? That’s the “slow season” each year. It happens every year and is totally normal. What’s more important to observe is whether those peaks are gradually rising or falling. For basically the last decade, those peaks have been getting closer to ground level as supply has dwindled. Now, however, I’m noticing a slight uptick. If you have ten years to wait, we may well be back where we were in 2012. For the rest of us who don’t have that long to wait, there is a simple truth to be gleaned from this data:
This Spring still belongs to the Sellers
Even if the market is recovering, it has a ways to go before we are anywhere near where we were a decade before. And there is no guarantee It ever goes back to where it was. Such is the way of the world — the tide comes in and rolls out, but some storms are once-in-a-lifetime.
So does this mean there is no hope for buyers this coming year? Of course not!
Buying a Home in a Seller’s Market
The market dictates how we approach searching for homes. For the last two years, market conditions dictated we get one showing before deciding if it was worth pursuing. Time was of the essence, as homes regularly sold in a weekend with multiple offers. It was expected to pay over asking to ensure your place at the top of the pecking order.
Like a game of poker, the key to getting great value is sizing up the table. Everyone has certain tendencies and tells, and knowing who has the most chips at the table is important. This does not mean you can’t win! You just have to play your hands judiciously and make the most of the opportunities you do get.
Get Specific
The first step is getting specific about what you want in a home. The more precise, the better. This allows me to go search beyond the normal “Bedrooms, Bathrooms, Price” model and hunt for opportunities rather than wait for them to become available.
Let’s say you want a four bedroom, three bathroom, three car garage home on Fish Lake in Maple Grove. That’s all well and good, but there are over a hundred homes on this particular body of water. What about sunrise/sunset views? Do you want to be on the lake for the views or so you can take your kids swimming on Saturdays? Do you need the home to be move-in ready, or is a remodel an option? With these details I can go talk to the best candidates before they go on the market and open doors that didn’t exist previously.
Preparation
Have you secured your financing yet? Working with a lender who can provide you with a pre-approval letter gives your offers clout and shows a seller you are serious about buying their home. This step is best done in advance of looking at homes so when the right opportunity presents itself you can act quickly. Fortune favors the prepared.
Be Aggressive
In a competitive market, put your best foot forward right away. Coming in low and hoping they’ll meet you halfway might leave a seller feeling annoyed and not wanting to engage in negotiations.
The Real Estate Market is Impartial
Remember, the market is what it is. Neither sellers nor buyers get to dictate the terms of the market. It’s an aggregate figure from thousands of individuals seeking home ownership.
The key isn’t in changing the minds of all those people, it’s in the interpretation of our surroundings. Like tracking a wounded deer, knowing what to look for is half the battle. The other half is the hard work trekking through the brush!
The combination of hard work and knowledge is a powerful thing, and through persistence even the most difficult home searches end with home, sweet home.
