How to tell the difference between a buyers’ and a sellers’ market

Article summary

• Supply and demand of housing influences the property market, which then determines whether it is a buyers’ or a sellers’ market.
• South Africa is currently in a buyer’s market, as sellers have been forced to lower their prices due to economic and political factors.
• You can gain insight into the current market by checking the local press and online resources, and talking to estate agents and those who’ve either bought or sold a home recently.

Simply put, whether you’re buying or selling a home, you need to know what kind of market you are in. “It affects everything from the listing price to your negotiating ability,” says Rhys Dyer, CEO of ooba home loans, South Africa’s largest home loan comparison service.

South Africa is currently in a buyer’s market, making it a good time to invest in property and pursue buying your dream home. How can you tell it’s a good time to invest? And how will you know when it’s a good time to sell? Dyer explains the difference between a buyers’ and a sellers’ market, and how it affects you during the course of your property transaction.

What is a buyers’ market?

“In housing terms, a buyers’ market occurs when there are plenty of homes available, but not enough qualified buyers to ‘absorb’ them all. Housing supply is high while demand is low,” Dyer explains, adding that, under such conditions, homes take longer to sell and homeowners often have to reduce their asking prices to land a buyer. “Sellers have to take whatever they can get, for the most part.”

Why we’re currently in a buyer’s market

An FNB report shows that residential property prices in South Africa have dropped for the second year running. Business Insider reported that, as of June 2019, house prices had increased by only 3.3% year-on-year in May, which trails the latest consumer price index (CPI) inflation of 4.5%.

In real terms, this amounts to a 1.2% decline in property prices. This has been attributed to issues such as:

• Affordability: When house prices get too high, demand decreases, and sellers are forced to lower their prices.
• Political uncertainty: While the 2019 election result was market-friendly, it will take the housing market awhile to recover from the political turmoil that accompanies election periods, especially with issues such as land reform at the forefront.
• Economic recession: This naturally slows down movement in the market, exacerbating the issue of affordability and forcing sellers to lower their prices if they hope to attract buyers.

What does this all amount to? It means that now is a good time to buy. But how would you know if we were entering a seller’s market?

What is a sellers’ market?

According to Dyer: “It occurs when there are few properties listed for sale, but plenty of buyers ready to purchase. In other words, supply is low but demand is high. In these situations, buyers have to fiercely compete with one another for a limited number of homes. Multiple offers are common, and they can turn into bidding wars.”

How do you gauge the market?

So, how do you know whether you’re in a buyers’ or sellers’ market? According to Dyer, there are several ways to gain this kind of insight:

• Read your local newspaper. “Home prices and housing markets are a hot topic right now, so your local news is bound to be watching it closely. Look for stories published within the last three months or so, since property conditions change over time,” he advises.
• Use the Internet. “Do a Google News search for your city’s name, followed by the phrase ‘property market’ or ‘house prices’,” he suggests.
• Talk to an estate agent. If anyone is in a position to make the call between a buyers’ market or sellers’ market, it’s an experienced agent, says Dyer. “They can be a great source of information. Besides, if you are truly in a buyers’ market right now, you’ll want your name on the books of your chosen area’s agents, not to mention a reputable home loan comparison service by your side to help you with your home loan application.”
• Ask around. “Seek out friends, family members or co-workers who have either bought or sold a home in the area recently,” he advises. “Ask them about their experience. They should be intimately familiar with the current state of your local housing market.”

Is there a middle ground?

Dyer explains, however, that buyers’ and sellers’ markets are two extremes and that there is a wide swath of “middle ground” as well. “In some cases, housing supply and demand are more balanced. So the market doesn’t really favour one party over the other. There tends to be more negotiating in a balanced market, because the buyer and seller have equal leverage.”

What’s more, he points out, conditions can vary widely from one province – or even suburb – to another. “Where a national or even global recession can create a nationwide buyers’ market, for the most, home prices climb rapidly in some areas – take the Cape, as an example – but fall in others. Supposedly, there is a balance point, but, realistically, the balance point is something that the market passes through while shifting from one type of market to the next. The property market constantly goes through cycles, with opportunities in every market.

Take advantage of the buyer’s market

If you’re looking to snap up properties, or purchase your dream home, while market conditions are in your favour; bear in mind that a home loan comparison service such as ooba home loans can help you get the best deal on your home loan by applying to multiple banks on your behalf.

They also offer a range of tools that make the process easier. Start with their home loan calculators; then use their free, online prequalification tool, the ooba Bond Indicator, to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.