How’s the housing market these days? It’s a question almost as common as asking about the weather. But do you really know what's going on with the housing market?
If you’re looking to buy or sell a house, you should. The ebb and flow of activity in the real estate market is a major factor in your ability to make a successful offer on a house or find a buyer quickly, and it may even affect how lenders valuate a property leading up to closing on a deal.
To be able to leverage all the details you need to make a confident, smart decision in a transaction, a little bit of knowledge on the current state of the real estate market is a must. But if you’re just throwing out common industry terms like "seller’s market" or arguing about buyer preference trends without any additional knowledge to back up your statements, you’ll likely see your bluff called.
You want to have an understanding of not just how the typical housing market cycle works, but also how your local market is functioning relative to the national market. To help you out, we’ve compiled the basics when it comes to understanding common real estate market lingo, current trends and how to examine the state of housing in your area.
Housing Market Basics
Here’s a breakdown of some of the basics to help you survive a networking conversation with a real estate pro, make it through a news article about your local market or decipher what you’re seeing in your ZIP code.
Buyer’s market definition: A buyer’s market occurs when there are more properties for sale than buyers actively shopping, which gives buyers the upper hand. Homes for sale can be on the market for a few months before the right buyer comes along, and it’s more likely that the seller will be inclined to give in to concessions the buyer requests, such as paying for a new roof or covering closing costs, in order to get the buyer to the closing table.
Seller’s market definition: A seller’s market occurs when there are more buyers than properties available, leading to competition among buyers that brings about bidding wars, buyers placing offers on properties sight unseen and buyers experiencing pressure to put more cash down to get a seller’s attention. In some seller’s markets, the competitive spirit can at times cause prices to inflate beyond the rate of property value growth. When this happens, lenders may catch an inflated price during appraisal and refuse to lend the full amount. In other situations, the market may endure a price correction in which buyers hit their price limit and activity slows until prices return to a more normal level.
Balanced market: Between a buyer’s and seller’s market is a balanced market, where there’s between three and six months of home inventory listed, depending on the area, at any given time. Because real estate tends to run in cycles, a balanced market is most often seen as a transitional period between a buyer’s market and a seller’s market, or vice versa, but it typically lasts for a shorter period of time than either extreme.
The local versus national housing market. Real estate is a highly localized industry, as a result of wide variations among property values, economic statuses and real estate laws that differ from state to state. The housing market in Los Angeles functions very differently from the market in St. Louis, which is why it's important to pay attention to your local housing market if you're looking at factors that will make the biggest impact on your real estate deal.
Looking at the national housing market, you can see overarching trends that take place in many parts of the U.S. and commonalities among the most populated parts of the country. If you’re looking to understand the relative value of your home, though, you should focus your research on your local market.
Also keep in mind that a reported property value is based on the asking price of properties currently on the market or reported appraised values by real estate appraisers. Reported median or average price, on the other hand, is based on properties that have recently sold, which means it is more likely to be accurate when determining what your house can reasonably sell for.
Factors lending to market changes. Because an individual’s ability to buy or sell a home is heavily influenced by his or her personal financial situation, the overall market is often influenced by changes in the job market, consumer confidence, lender regulations and zoning laws.
But with houses being as big and highly valued as they are, real estate typically doesn’t see snap-judgment changes like the stock market does. The relatively slow-moving nature of real estate transactions helps prevent the housing market from crashing on a regular basis.
What happened in the housing market crash. Of course, the housing market can crash – and it did in 2008. After years of lenders issuing mortgage loans with little regard for the appraised value of the properties or the likelihood the borrowers would be able to keep up with payments, the adjustment of interest rates led to mass foreclosures. During the Great Recession, 7 million Americans lost their homes, and many more owed more on their mortgage than their home was worth.
Because the housing market crisis was so widespread, it remains vivid in the minds of many people as they prepare to buy a house, sell a house or invest in real estate. Some in the real estate industry note similarities, like sale prices, in the current housing market to years like 2005 or 2006, which led to the bubble burst. But they also neglect to note the regulatory differences for lenders that are aimed at keeping subprime loans and predatory lending from becoming the norm again.
Here's what you need to know to get from start to finish in the homebuying process.
The Housing Market Now
Once you have the fundamentals of talking about real estate markets down, keep up on housing market news. The housing market shifts throughout the year and cycles through larger trends over several years. Here’s what you need to know about the current housing market.
Housing market trends. The last few years have shown buyer demand outpacing housing supply on a national scale, leading to rapidly rising home prices in many markets. But in late 2018, rising mortgage interest rates led to a breaking point for many homebuyers.
“Homes sat a bit longer (and) sales really declined – especially in the last few months of the year,” says Taylor Marr, lead economist and data scientist for national real estate brokerage Redfin.
The Federal Reserve increased the Federal funds interest rate for the fourth time in 2018 in December from 2.25% to 2.5%, and many mortgage lenders echoed the increase in mortgage interest rates, which reached 5% for a 30-year, fixed-rate mortgage. Seeing rising interest rates as taking homeownership out of their affordability range, homebuyers stopped looking, and they did so all at once.
To correct the issue, mortgage rates dropped.
“That was a very rapid, almost whiplash, drop. Everyone was taken by surprise,” says Edward Pinto, resident fellow at the American Enterprise Institute and director of the AEI Housing Center.
But with a still strong job market and growing national economy, people started buying homes again in early 2019, though not quite as competitively as in recent years. For people looking at the housing market today, demand has lessened, making it easier to buy a home, and prices continue to rise, though at a slower and more sustainable rate than before.
“You’re way less likely to enter into a bidding war if you’re buying a home this year compared to last year,” Marr says.
AEI Housing Center’s Home Price Appreciation and Months’ Remaining Inventory report for July 2019 shows that home price appreciation rose 3.8% year-over-year in July. The increase shows solid price appreciation, but is also less growth than the year-over-year number from July 2018, which was 5.2%.
Homeowners who have made a purchase in the last few years aren’t interested in testing out the market, which keeps the number of existing properties on the market low. Construction activity, too, is slow to add inventory to the market, and is often hindered by labor shortages and local property zoning restrictions.
But where there is new construction, builders are focusing more on providing more entry level housing opportunities than previous years. Pinto uses Raleigh, North Carolina, as a prime example of a metro area that is not only growing in population, but has been able to see rising home prices at an affordable level.
A combination of consistent job growth, less pushback from local government when it comes to construction and more builders willing to build for the buyers who are looking has kept home prices from exploding beyond residents’ means.
“Raleigh has just sort of chugged along. Prices have gone up more slowly than wages (historically),” Pinto says.
Housing market predictions. As you examine the status of your local housing market, keep in mind that market predictions aren’t a guarantee. As long as you are making a well-informed decision regarding a home purchase or sale, including taking into account the potential for changes to your financial situation in the near future, a prediction should not have a major impact on your deal.
As economists discuss the possibility of a future recession in the next year or two, unsure homebuyers may back off from the market – and homeowners may be even less likely to put their property up for sale. But that doesn’t mean buying a home now or in the near future is a bad idea. It’s still the best choice for many, Marr says.
Traditionally, home prices remain relatively stable during a recession – with the housing market crisis during the Great Recession being an exception to the rule. If you’re looking at moving into your first home and you’ve been planning for the purchase, a future recession “shouldn’t be a big concern as long as you can afford it,” Marr says.
Of course, how the housing market fares during a recession also depends on local factors. The housing markets currently seeing steady growth are also likely to see little decline during an economic downturn – and they’re not the big cities you might assume.
“The momentum has largely been on the West Coast and the western cities … but now that momentum has shifted to older Midwestern cities,” Pinto says.
Indianapolis, Cincinnati, Detroit and Pittsburgh are among the metro areas seeing higher price appreciation – as high as 6.6% year-over-year in July in Pittsburgh. Meanwhile, many of the places seeing the slowest appreciation are those places that were the hottest markets just a couple years ago: New York City, the District of Columbia, Seattle, San Francisco and Denver.
The benefit to higher growth in the secondary metro areas is the fact that they traditionally have a lower median home price to begin with. Even with significantly higher price appreciation, the cost of a home in Indianapolis, which saw in increase of 5.7%, will remain well below the cost of a comparable property in San Francisco, which saw an increase of 1%.
Common Questions About the Housing Market
When is the best time to sell a house? Most markets throughout the U.S. see the highest level of active buyers in the spring. A market that sees four seasons, like Detroit, will likely experience peak activity in spring, early summer and early fall. A hot climate like Phoenix, on the other hand, is more likely to see continued activity throughout the winter.
To determine the best time to list your house, however, place your needs first – whether it’s waiting for the kids to get out of school for the summer, listing in the winter to meet your financial needs or putting your home on the market with little notice during the fall because you were transferred for work.
Listing your house in the winter or at the height of summer doesn’t mean your house won’t sell. It may just need to be more aggressively priced, or you may have to wait a bit longer for the right buyer to come along.
Is it a buyer’s or seller’s market? Looking at your own real estate market, check the current housing supply to determine if you’re experiencing a buyer’s or seller’s market. Local real estate associations, like your regional or state chapter of the National Association of Realtors, often release quarterly or monthly reports that touch on how to decipher whether your local market is in a buyer’s or seller’s market.
Keep in mind that being in a buyer’s or seller’s market won’t prevent you from selling or buying a house. It may simply take more patience to find the right house, or you might have to be more flexible with the price.
For homebuyers who struggle to compete with other bidders in today's market, Davidson offers the reminder that newly built homes are an option in “just about every price range they could be looking in,” at least where his company builds around Nashville.
What will the housing market look like in five years? A weather forecast for the next 10 days tends to be unreliable, so don’t expect a five-year housing forecast to be 100 percent accurate. However, based on some general trends in building and buyer preference, there are a few bets you can consider likely.
Inventory will return slowly. The Great Recession essentially halted construction, and developers and builders have struggled to keep up in the years afterward to meet demand. New generations are reaching adulthood and financial independence, which means more households continue to form throughout the U.S., but construction still can’t meet demand.
While construction activity may be growing now, expect it to pull back in times of economic uncertainty. “Builders are really some of the first to anticipate that,” Marr says.
Expect fewer luxury developments. In major urban centers and the suburbs surrounding them, new construction has largely focused on providing mixed-use development that typically includes luxury housing options.
Builders and developers are moving away from the housing options that only cater to the highest earners in a city, Marr says. Instead, new construction has been including homes with smaller square footage or more midlevel appliances that target a greater share of the population.
That focus on affordability is also changing buyer preferences. While a walkable neighborhood with access to shops, restaurants and offices has been the focus for many buyers and developers in the last few years, price appreciation in those areas has slowed. A Redfin report released in August shows that car-dependent neighborhoods are appreciating more rapidly, likely because buyers are willing to sacrifice a bit of drive time to reduce their total cost of living.
When will housing prices drop again? Buyers in areas where home prices have been rising rapidly may be hoping and waiting for a drop in prices, but an actual drop would mean there’s something going wrong in the economy. Either locally or nationally, home prices drop when there’s suddenly not enough buyers shopping for houses and more houses going up for sale, often caused by a halt in income growth or job loss.
In an ideal world, home prices drop suddenly, allowing you to buy the house you want with the money you have. But that’s an unlikely situation because if home prices suddenly drop, there’s a possibility you’ve been affected by the declining economy as well, which is a greater threat to your ability to become a homeowner.
For buyers who feel squeezed out of buying a home in their metro area due to high prices, the better alternative is for the rise in prices to slow down, allowing you to catch up. More homeowners willing to sell, more new houses being built and fewer buyers with more money than they need help price growth to slow down, while still making homeownership less treacherous.
Ensure a quick sale.
Selling your home quickly not only allows you to move on with your life, it also means fewer days of keeping your home in pristine condition and leaving every time your agent brings prospective buyers for a tour. According to real estate information company Zillow, the best time to list a home for sale is on a Saturday between May 1 and 15; homes listed during those times sell six days faster and for 0.7% more than the average annual home price. But how fast your home actually sells, and at what price, depends on factors beyond timing. Here are 10 secrets to selling your home faster, no matter when you list it.
Updated on March 20, 2020: This story was published at an earlier date and has been updated with new information.Pick a selling strategy.
Pick a selling strategy.
Before putting a for sale sign in your yard, it's important to pick the selling strategy that will work best for you. The for-sale-by-owner option may be best if you feel confident in your ability to market the home and negotiate. If your time is better spent on other details, a real estate agent could be best. If you need to sell the home quickly, you may want to inquire with an iBuyer, an entity that can make the deal close faster than the typical homebuyer. You should feel confident in the selling strategy you choose, and avoid switching from one to the other while your house is on the market. Buyers could be turned off by the constant changing of circumstances.Invest in a professional photographer.
Invest in a professional photographer.
According to NAR's 2019 Profile of Home Buyers and Sellers, 44% of recent buyers started their search online. Of those, 87% found photos very useful in their home search. If your listing photos don’t show off the features of your home, prospective buyers may reject it without even taking a tour or going to the open house. Hiring a professional photographer and posting at least 30 photos of your home, inside and out, is a good way to attract buyers. Photography is often free for home sellers, as shoots are often conducted at the expense of real estate brokers as part of marketing the property.Clean everything.
(People Images/ Getty Images)
Nothing turns off buyers like a dirty house. Hire a company to deep clean if you can’t do it yourself. “When the (home) is on the market, no matter what time of day or night, it should be clean and neat,” says Ellen Cohen, a licensed associate real estate broker with real estate brokerage Compass in New York City.
Key places to clean while your home is on the market include:
- Kitchen countertops.
- Inside cabinets and appliances.
- Floors and room corners where dust collects.
- Bathroom counters, toilets, tubs and showers.
- Inside closets.
- Windows, inside and out.
- Scuffed walls, baseboards and doors.
- Basement and garage.
Depersonalize the home.
Remove all your family photos and memorabilia. You want buyers to see the house as a home for their family, not yours. Remove political and religious items, your children’s artwork (and everything else) from the refrigerator and anything that marks the house as your territory rather than neutral territory. The same goes for any collections such as figurines, sports memorabilia or kids' toys that can make a buyer think less about the house and more about you. Family photos can be replaced by neutral art or removed entirely – just be sure to remove any nails and repair nail holes where any hanging photos used to be.Let the light in.
Let the light in.
People love light and bright, and the best way to show off your house is to let the sunshine in. Open all the curtains, blinds and shades, and turn lights on in any dark rooms. If the natural light situation is lacking in any room, strategically place lamps or light sources throughout to set the mood. And while your house is on the market, open all curtains and turn on lights every time you leave your house for work or errands in case you get word that a buyer would like to tour the space before you get home.Be flexible with showings.
Be flexible with showings.
Buyers like to see homes on their schedule, which often means evenings and weekends. Plus, they want to be able to tour a home soon after they find it online, especially in a hot market where they're competing with other buyers. If your home can be shown with little or no notice, more prospective buyers will see it. If you require 24 hours’ notice, they may choose to skip your home altogether. "That's one less person who gets to see the property," Cohen says. Be ready to leave quickly as well – if you're still cleaning up or hanging around outside when the buyer arrives, it can make for an awkward interaction.Set the right price.
Set the right price.
No seller wants to leave money on the table, but the strategy of setting an unrealistically high price with the idea that you can come down later doesn’t work in real estate. Buyers and their agents have access to more information on comparable homes than ever, and they know what most homes are worth before viewing them. A home that’s overpriced in the beginning tends to stay on the market longer, even after the price is cut, because buyers think there must be something wrong with it. "Pricing correctly on the lower side tends to work much better," Cohen says.Remove excess furniture and clutter.
Remove excess furniture and clutter.
Nothing makes a home seem smaller than too much big furniture. Rent a self-storage container or a storage unit and remove as much furniture as you can. It will immediately make your home seem calmer and larger. Remove knickknacks from all surfaces, pack them away and store the pieces upon which you displayed them. Take a minimalist approach to books, throw rugs and draperies, and clear off your kitchen and bathroom countertops, even removing appliances you normally use. If you can scale down the contents of your closets, that’s even better, because it makes the home's storage space look more ample.Repaint in neutral colors.
Repaint in neutral colors.
A new coat of paint will do wonders to freshen up your home, both inside and out. This is the time to paint over your daughter’s purple bedroom, nix the quirky turquoise bathroom and cover up the red accent wall in your dining room. Busy wallpaper can also turn off potential buyers. Your goal is to create a neutral palette so buyers can envision incorporating their own personal touches in the home. "You just want people to see the space for what it is," Cohen says. Rather than a stark white, consider neutral shades of gray, taupe and cream on the walls.Spruce up the front of your home.
Spruce up the front of your home.
You’ve heard it 100 times before, and it’s still true: Curb appeal matters. You don’t get a second chance to make a first impression. A new or freshly painted front door, new house numbers and a new mailbox can breathe life into your entryway. Fresh landscaping and flowers in beds or in pots also enhance your home’s first impression. Trim trees and bushes, tidy up flower beds, remove dead leaves from plants, clear out cobwebs from nooks near the entrance and pressure-wash walkways, patios and decks. Leave the outdoor lights on, too, because prospective buyers may drive by at night.Here are 10 tips to sell your home faster:
Here are 10 tips to sell your home faster:
- Pick a selling strategy.
- Invest in a professional photographer.
- Clean everything.
- Depersonalize the home.
- Let the light in.
- Be flexible with showings.
- Set the right price.
- Remove excess furniture and clutter.
- Repaint in neutral colors.
- Spruce up the front of your home.
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Updated on Sept. 13, 2019: This story was published at an earlier date and has been updated with new information.
She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.
Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at firstname.lastname@example.org.