It’s common sense. A person buying a new home wants the price to be as low as possible. A person selling a house wants the price to be as high as possible. Where they meet in the middle is when a house sale happens.
Sometimes, though, things favor the buyers, and other times, things favor the sellers. If you’re thinking of buying a home, the best opportunity for you is to dive in when things favor buyers, and for sellers, you want to sell when things favor sellers. It’s all common sense on the surface, but what does that really mean? How does it affect you? And how do things look for the 2021 housing market?
Buyer’s market vs. seller’s market
A buyer’s market occurs when there are more people selling homes in a particular area than buying homes. This means that there are a lot of homes on the market and they stay available for longer. Because of the competition, this forces prices downward, meaning people who actually buy in a buyer’s market get a better price.
A seller’s market is just the opposite. It occurs when there are more people buying homes in a particular area than selling homes. This means that there aren’t very many homes on the market, they don’t stay available for long and there are lots of homebuyers out there looking to buy a house. In those situations, sellers can charge higher prices for their home — there’s less competition to sell and lots of buyers hungry, so one of them will jump up and pay that higher price.
As a buyer, you want to be in a buyer’s market, where there are lots of homes and competition between sellers. You’ll get more home for your dollar or you’ll buy the exact home you would have otherwise wanted for less, which makes it easier to get a mortgage.
If you’re selling, a seller’s market is great for you. Knowing whether a particular area is going to be a seller’s market or a buyer’s market, particularly in the coming months, can help you make a big decision about your home, possibly saving you or making you some extra money in the process.
Housing market predictions in 2021
So, what will housing markets do in 2021?
In the most expensive housing markets in America, housing prices are actually dropping. Many people, given the ability to work remotely thanks to COVID, are migrating to lower cost of living areas, and that means an exodus from the most expensive spots.
However, once you move into other metros with less expensive housing markets, particularly smaller metros and suburban areas, the future looks more favorable to sellers. For example, in San Diego’s housing market, analysts expect housing prices to rise by as much as 8.3% this year. In many other smaller metro areas, home prices are rising sharply.
Even within metro areas, you can see a mix of buyer’s markets and seller’s markets, says Gail Lissner, managing director at Integra Realty Resources in Chicago, Illinois. She used the Chicago metropolitan area as an example of this phenomenon.
“In the Chicago metropolitan area, home sales were strong in 2020 for the detached single-family segment of the market. Overall, sales volume was up 13% over 2019, with the average sold price up 9%.”
On the other hand, attached homes — like townhouses and condos — didn’t fare as well, according to Lissner. Sales volume was only up 2% and the average selling price decreased by 1%.
What made the difference? Well, it’s the coronavirus pandemic.
“[These patterns are] likely due to COVID-19-related factors, where we saw strong interest in home buying in residential neighborhoods of Chicago or in the suburban area,” Lissner adds. “In contrast, condos and townhomes did not provide the same amenities that buyers were seeking due to COVID-19, including lower density housing and larger living spaces.”
Will we have a buyer’s market in 2021? In the largest metro areas, yes. In other areas, it’s a mixed bag. If you’re looking at a condo or townhouse near a city center, you’re likely in a buyer’s market. If you want a bigger home, particularly in the suburbs and outer areas, you’ll likely see a seller’s market.
Buying a house in a seller’s market
What if you’re wanting to move into one of the seller’s markets, buying a full-sized home in smaller metro areas and suburban areas?
First of all, be prepared for competition with other buyers. It’s tempting to negotiate when buying, but you’ll often find yourself in a house bidding war. The best way to handle a house bidding war is to present your best offer up front and be pre-approved before you even start shopping so you can make an offer quickly.
Speaking of pre-approval, it’s absolutely essential in a seller’s market because of the need to have a clear budget and also to strike fast. You’ll want to shop around in advance, looking for reputable lenders offering the best mortgage rates.
Another approach is to simply consider whether or not you’d be better off living in a buyer’s market. Is there another area of the country where the housing market is more favorable right now that lines up well with your career and other goals?
Buying a house in a buyer’s market
In a buyer’s market, such as ones you might expect in New York City or San Francisco in 2021 or if you’re looking at an attached home closer to a city center, different strategies apply. You can be much more selective and patient and can get away with making lower offers and negotiating with sellers.
If you find yourself in this situation, look at a wide variety of homes — there should be plenty on the market — and watch for price reductions as people cut the selling price in a desire to get the property off their hands. When you do make an offer, don’t be afraid to add some small contingencies, offer a price notably lower than the sale price or ask for the seller to pay closing costs. If you find a great home with just one or two problems, ask for a credit so that you can pay to have those issues fixed.