What is a buyer’s market? Definition and meaning
A buyer’s market, also known as a soft market, is a situation in which the buyers call the shots, because demand is relatively low compared to supply. This means the purchaser is in a stronger position than the seller to find low prices or negotiate better deals.
The opposite of a buyer’s market is a seller’s market, when demand outstrips supply, prices rise and goods and services take less time to sell. The two terms are commonly used in real estate.
After property prices have peaked, real estate shifts towards a buyer’s market. The ratio of total properties on sale versus the number of buyers tilts in the buyer’s favor, i.e. supply exceeds demand.
In a buyer’s market, the purchaser is happy but the seller is not, it is the other way round in a seller’s market.
In real estate, several factors may affect prices, supply, and demand – employment, investment growth, legislative changes, interest rates, and new construction. These, plus a number of other factors, push the market in the buyer’s or seller’s favor.
In a buyer’s market, purchasers can take their time before deciding whether or when to commit themselves, because they know things will move slowly and what they saw last week will probably be on sale for a while.
According to Cambridge Dictionaries Online, a buyer’s market is:
“A time when there are more goods for sale than there are people to buy them, so prices are usually low.”
Example of seller’s or buyer’s market
Imagine you live in a town with 200,000 dwellings, and that 6,000 of those are for sale.
John Doe Inc., the largest employer in your town, has just announced it is closing down, leaving thousands of people out of work. Many of these soon-to-be ex-John Doe employees will want to put their homes on the market and move to another town with better job prospects.
Within a few weeks, the number of houses for sale increases to 12,000, i.e. supply doubles.
Job prospects in your down are poor, which means that few people are rushing to move in from outside. Given that employment prospects are weak, very few locals can or are interested in buying a new home. In other words, demand is low.
Those who are interested in purchasing a home have the upper hand because it is now a buyer’s market – supply has increased while demand has declined.
If the opposite occurred – John Doe Inc. announced an expansion rather than a closure – demand for homes would rise and it would become a seller’s market.
The term can be used for any market, such as oil, coffee, milk, automobiles, gold, etc. If supply has risen and demand declined, it becomes a buyer’s market.
Video – Buyer’s Market vs. Seller’s Market
Calgary real estate expert Jared Chamberlain explain the difference between a seller’s and buyer’s market.