By the real estate industry’s definition, a buyers market is typically when there are five to six months of inventory available on the market. Some industry professionals say that even three months can be defined as a buyers market.
Months of inventory means how long it would take (in months) for all of the homes currently listed for sale to sell if, all of a sudden, no more homes were listed.
Buyers market vs. sellers market is a common measure to see who the market currently favours.
In simpler terms:
Sellers market: demand exceeds supply
Buyers market: supply exceeds demand
Who knows where the “5-6 months” or “3” months came from. Perhaps historically trends. Or past experiences.
One thing is for sure. The latest drop in sales and rapid increase in listing inventory has quickly changed the tides of buying and selling real estate in Toronto.
Instead of using a numbered metric, which is arbitrary at best, what I propose is to define the market by what’s actually happening in real time.
What strategies are sellers using? What about buyers? How are both sides reacting at the negotiation table in the current market?
Let’s set aside the ‘months of inventory’ metric and look at what happens when a market favours sellers and when it favours buyers.
Market conditions favourable to sellers
In a sellers market, there is waaaaaay more demand than supply. That means lots and lots of buyers are competing on a very limited inventory of homes.
In the months leading up to April of this year, inventory levels reached record lows. Multiple offers were the norm. And so were selling prices of $100k or more over asking price.
There was less than a month of inventory in many Toronto neighbourhoods.
In a seller’s market, prices jump drastically. Seemingly overnight. Buyers are desperate to get their share of the action and bid up the prices.
Listings are underpriced to encourage a frenzy of buyers.
Open houses are packed.
Offers come in firm — no conditions on financing and inspection.
Big deposit cheques come in on offer night.
Bidding wars happen. And there are more losers than there are winners.
Conditions favourable to a buyers market
All of a sudden, more listings creep into the market place. In the past few weeks, creep would be an understatement. A more accurate description would be: listings surged.
Sellers (errr… Realtors…) aren’t underpricing as ridiculously as they were weeks ago.
Multiple offers become scarce. (Generally, offers become scarce… and sellers get worried.)
Financing and inspection conditions come back.
Offers no longer come with big deposit cheques. They’re submitted in the ‘standard’ 24 hour period.
And buyers feel free to shop around without FOMO — the fear of missing out.
So… what market are we in today?
Despite the numbers released by TREB for May showing we have about 1.1 months of inventory, the market conditions signalling a buyers market is here.
Don’t kid yourself. Accepting this will help you thrive in today’s market, regardless of whether you’re buying or selling.
Sure, you could say ‘let’s wait and see’ and wait it out a few weeks… or months… to see if the sellers market we saw earlier this year will revive.
But you could also miss out on the opportunities happening right now.
Knowing what kind of market it is will help you figure out what strategies will work.
If you’re selling, you may not get the astoundingly astronomical prices some of your neighbours may have seen. That’s the reality. Prices could be 10% lower than what they once were.
Delaying offers and underpricing your home might do more harm than good.
Not being open to the offers you’re getting on the table could be detrimental — especially if you’ve already bought another home closing in a month or so (or less).
If you’re buying — are you really going to wait and see how low prices can go?
It really depends on your motivation, and why you need to buy a home.
If you’re looking at a long term commitment, the market will go through a number of cycles before you may need to sell again.
Sellers — pay attention
Don’t underprice. Don’t hold back offers. Ask your Realtor to keep an eye out on what’s happening to the homes listed in your neighbourhood.
Be realistic about your expectations.
Selling for a gajillion dollars over your asking price won’t happen anymore. At least for now.
Don’t scoff at offers that come to the table. Believe me. In this market, you’re lucky to get any offer. And the one you’re staring at might be the best one. Who knows what the next one will look like.
Most importantly: don’t buy a home before you sell yours.
Sellers who bought first earlier this year got away with it, while prices were still on their way up.
My advice for buyers
Know why you’re buying. Shop around. Know your numbers and make sure you can afford to get into the market.
If you find a home you absolutely love, and it fits your criteria, consider making an offer. As long as you know you’re making a long term commitment.
There’s nothing wrong with renting if you’re indecisive. And it’s a great way to test drive some of Toronto’s neighbourhoods before you commit.
Take time to breathe — because you’re seeing a lot of opportunities unfold in a market less scary than it was just a short while ago.