When deciding your next financial move – whether in terms of a potential investment or purchase – you should be aware of the trends in the marketplace; and in the overall economy. In the real estate market, retail sales market, or stock market, there are significant patterns which should dictate the prudent buyer or seller’s strategy. When considering the bigger picture, pay close attention to the following:
A “buyer’s market” is a financial market in which the buyers are more influential in deciding the value of assets than the sellers. When supply exceeds the demand for a particular good or set of goods, the conditions are considered representative of a buyer’s market.
By way of example, let’s consider the real estate market. When there is more real estate available on the market than there are interested buyers, the buyers are better able to dictate pricing. In other words, the buyers can decide how much they are willing to pay for the subject real estate, because there is less competition (demand). Within the context of a buyer’s market, suppliers will have to concede to the wishes of their customers in order to sell their inventory.
A “seller’s market” is a financial market in which the sellers are more influential in deciding the value of assets than the buyers. When demand exceeds the supply for a particular good or set of goods, the conditions are considered representative of a seller’s market. Here, the sellers can set the price, because they have the leverage. When the demand greatly exceeds supply, the few sellers in the marketplace – that hold any of the desired assets – are capable of raising prices or holding out for the best offer.
By way of example, let’s again consider the real estate market. When there is less real estate available on the market than there are interested buyers, the sellers are better able to dictate pricing. In other words, the sellers can decide how much they are willing to accept for the subject real estate, because there is great competition (demand). Within the context of a seller’s market, buyers will have to concede to the asking price of the seller if they want to acquire the real estate in question. Put differently, if you hold a piece of property that is in a highly-demanded area, you can increase the asking price, initiate bidding competitions, or wait for buyers that are willing to pay more.
The markets react quickly to supply and demand fluctuations. This allows a buyer’s market to quickly become a seller’s market and vice-versa. A great example of this cycle is the housing bubble of the 2000s. In the early part of the 2000s, the real estate market was categorized as a buyer’s market. Accordingly, property holders had the ability to charge higher and higher prices for their properties. When the bubble popped and homeowners began to sell off their property, the market became flooded with depreciating properties. This initiated a seller’s market, as property holders were forced to lower prices to compete with each other for the limited demand for new houses.
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