The concept of supply and demand is simple, but it’s very important to keep in mind when you’re in the real estate market, whether as a buyer or a seller.
When there are more homes for sale than there are willing and able buyers, house prices go down; this is called a buyer’s market. Sellers have more competition, and homes often stay on the market longer. The buyer in this case has more leverage in negotiations, and can add more conditions to an offer. In this type of market, a buyer has more time to look, and can negotiate harder.
When there are more willing and able buyers than there are properties on the market, this is called a seller’s market. When this happens, there is more competition for the available properties, and prices go up. With fewer homes to choose from, there is more competition amongst buyers. Sellers have more leverage in this type of market, and are less willing to make concessions to buyers. This imbalance often leads to bidding wars. In this type of market, it is more important than ever for buyers to be prepared to act quickly.
When the number of homes on the market is roughly equal to the number of buyers, it’s called a balanced market. With sellers and buyers on equal footing, housing prices stabilize and the atmosphere on both sides of the transaction becomes relaxed. A balanced market usually doesn’t last long.
Across the country, market conditions vary widely. What you read in the national news may not reflect what is going on in your area. Likewise, this variation in market conditions can also apply to areas in the same state, or neighborhoods within the same city, for a variety of reasons.
Right now in San Francisco, we are in a seller's market in all areas of the city. Take a look at the chart above - the Months Supply of Inventory has dwindled to just over a month. This is down from 5.5 months in September of 2010. Every week at our sales meeting, there are tales of multiple offers, and properties selling before there has even been an open house.