When investing in or selling property, it is wise to know where the market stands. Buyers will want to purchase real estate in a buyer’s market. But what does buyer’s market mean, and how does it compare to a seller’s market? Keep reading for buyer’s market: defined and explained.
A buyer’s market occurs in real estate when there is a surplus of property for sale and a dearth of buyer demand. Buyers can use the resulting negotiating power to possibly secure a lower sale price.
Note that buyer’s markets can happen on a local or national level, or both, and that buyer’s and seller’s markets are cyclical, meaning each will at some point give way to the other.
In real estate, a buyer’s market means that the supply of properties available exceeds buyer demand. That causes real estate prices to tumble and properties to remain on the market longer. Thus, sellers must generally vie for sales, which can mean lower prices for buyers.
To make the most of a buyer’s market, one first must be able to identify it. Signs include:
After the pandemic began in 2020, when interest rates dropped and nearly everyone worked remotely, many people sought to buy homes, which caused housing prices to soar.
Investors who find themselves in a buyer’s market have the edge in terms of securing properties they seek to own. Still, to make the most of the market, here are some suggestions to consider:
Because there is less inventory, buyers’ choices are limited, and properties sell quickly. In this landscape, sellers can increase their prices and may get offers that exceed their asking prices.
Because properties sell faster in such a milieu, buyers must compete to secure a property, which can lead to bidding wars. This usually means that sellers can increase their asking prices.
In a seller’s market, there are fewer properties for sale – diminished supply – and an increased demand of buyers looking to buy. In other words, while demand for properties is high, relative inventory is low.
The real estate market in the early-to-mid 2000s was considered a seller’s market, as properties were in increased demand and likely to sell, their price or condition notwithstanding.
Because sellers must compete to lure buyers in a seller’s market, here are some suggestions for heightening interest in one’s property:
While the nation remains in a seller’s market, there are indications that the emergence of a buyer’s market might be imminent. Housing inventory began creeping up last fall, and Redfin data expects this year to register the first year-over-year price decrease since 2012.
A buyer’s market gives investors more properties from which to choose, meaning they have a better chance of finding the right real estate for them. It also gives them more time to shop around and ensure that their finances are in order.
An ample supply and limited demand results in a buyer’s market. This usually means that buyers will not immediately snap up properties as soon as they are listed for sale. Prices can flatten or decrease, and sellers are typically grateful for each offer.
When it comes to shopping for real estate properties for investment, investors have more advantages in a buyer’s market. Buying under such market conditions can yield securing a preferred property for less than the asking price, which could be a fortuitous nice entry into real estate investing.
There are a number of ways to break into what remains a hot real estate market, including real estate private equity, which targets institutions and those with high net worth.
But one need not be ultra-rich to invest in real estate. After all, there are opportunities through rental properties and other private real estate investing.
Another popular way to invest in real estate that is less costly than real estate private equity is through real estate investment trusts. REITs, which allow investments in real estate without the physical property, are enterprises that own commercial properties such as office buildings, retail spaces, hotels, and apartments.
Consider Yieldstreet, an investment platform that has funded some $3.2 billion in alternative investments, with a 9.7% internal rate of return since 2015 (as of July 2023). Offerings include a Growth & Income REIT fund that makes equity investments nationwide in key commercial markets. Property types, with minimums as low as $10K, include self-storage, hospitality properties, multi-family, retail, and industrial.
No investment is risk free. However, having a modern portfolio with an asset mix that includes alternatives such as real estate can mitigate overall portfolio risk. In fact, diversification is key to successful investing.
Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.
Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.
In some cases, this risk can be greater than that of traditional investments.
This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform. However, that meant the potentially exceptional gains these investments presented were also limited to these groups.
To democratize these opportunities, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments.
Investors and anyone who buys or sells property should be aware of market conditions, then proceed accordingly. Recognizing the considerations of a buyer’s market is particularly key in real estate, which can be used to diversify one’s investment portfolio while potentially generating steady returns.
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.