The real estate market is prone to fluctuation, which is one of the reasons that investing in a home is always a risk. Home prices rise and fall for a number of reasons, and even the most informed buyer or analyst may be unable to predict what will happen to a specific piece of property or the market in general.
A buyers' market occurs when the housing market favors home buyers. The market may be defined with any type of parameters, such as a geographic region or price range. The market favors buyers when home prices are relatively low and there are a large number of homes available at a given time. Some real estate agents and analysts use a six-month sale as the base level for naming housing markets. When most homes take more than six months to sell, it is a buyers' market.
Supply and Demand
Buyers' markets are a result of the simple economic principle of supply and demand. When there are many homes available to prospective buyers, with supply exceeding demand, a buyers' market occurs. Supply and demand are both subject to change, which is how markets can transform so quickly. If new buyers enter the market, demand rises. At the same time, if home sellers decide to remain in their homes, supply decreases.
A sellers' market is the opposite of a buyers' market. This occurs when there are not enough homes to satisfy the number of buyers in the market. Sellers can increase their asking prices and the buyers will be more likely to pay more due to limited options. Sellers' markets are also affected by supply and demand conditions, but they occur when the balance shifts and housing supply is relatively low compared to demand. A sellers' market usually kicks into effect once the buyers' market kicks into high gear.
A housing market may become a buyers' market for several reasons. Speculative construction produces new homes without guaranteeing buyers, essentially creating supply and hoping for demand to increase as well. For example, if a developer builds many low-cost homes in a neighborhood that later undergoes an economic boom, there may be few buyers in the market for those low-cost homes. Economic trends in a specific region that force homeowners to move elsewhere, like the departure of a major employer, can open up a large number of homes that a smaller influx of buyers have to choose from. Demographic shifts, like young people who wait longer to buy a home, can also shrink the pool of buyers, creating a buyers' market.
The biggest result of a buyers' market is an overall lowering of new home prices. Sellers who are eager to move on may reduce the asking price many times over the period of months that it takes to find a buyer. Buyers' markets also encourage real estate investing, with buyers taking advantage of the low home prices and acting on the buy-low, sell-high philosophy, which then relies on expectations that the market will shift to a sellers market at some point in the future. Buyers' markets see homes remaining for sale for longer periods of time, which increases a seller's cost of selling a home and increases the amount of work real estate agents must do to make a sale.
Written By:by Dennis Hartman, Demand Media, Source:http://homeguides.sfgate.com/term-buyers-market-mean-7134.html