Let’s start with the basics
The housing market refers to the general market of houses being bought and sold between buyers and sellers. These houses are either bought or sold directly by owners or indirectly through brokers. Like any market, the housing market is governed by the law of supply and demand. When demand is high and supply is low, the market appreciates. When demand is low and supply is high, the market depreciates.
How inventory affects value
In the real estate industry, we think of supply and demand in terms of available inventory. You can measure inventory by answering the following question: At the current pace of sales, how long would it take all of the houses available on the market to be sold? As inventories rise, home prices tend to decline. This is because as inventories rise, so does the competition amongst sellers, which drives prices down.
The difference between a buyer’s and seller’s market
A buyer’s market is associated with longer inventory periods. As homes sit on the market for longer and longer, sellers become more and more flexible with their prices. This is great for buyers, as they usually end up getting a good deal (hence the term “buyer’s market”). In contrast, a seller’s market is associated with shorter inventory periods. Homes sell rapidly, giving sellers a lot of pricing power (hence, it’s a “seller’s market”).
Keep in mind that, as with other markets, the housing market is cyclical: There are periods of rapid appreciation followed by periods of stabilization or depreciation. By studying the market, you can learn to foresee such trends.
For more real estate tips and advice tailored to your specific needs, don’t forget to reach out to your local realty specialist!
This content is not the product of the National Association of REALTORS®, and may not reflect NAR's viewpoint or position on these topics and NAR does not verify the accuracy of the content.