Buyer’s market – definition and meaning
A buyer’s market or soft market is one in which the buyers call the shots because demand is lower than supply. This means purchasers are in a stronger position sellers. In other words, it is easy for buyers to negotiate better deals in a buyer’s market. Buyers are also happy because prices are relatively low..
The opposite of a buyer’s market is a seller’s market. In a seller’s market, demand outstrips supply and prices rise. In a buyer’s market goods take a long time to sell. On the other hand, in a seller’s market, goods take a short time to sell.
We commonly use the two terms in real estate. Real estate is the buying and selling of property.
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. In other words, supply exceeds demand.
A buyer’s market is a slow market
In real estate, several factors may affect prices, supply, and demand. Factors also affect employment, investment growth, legislative changes, interest rates, and new construction. All these factors push the market either in the buyer’s or seller’s favor.
In a buyer’s market, purchasers can take their time because they know things will move slowly. In other words, they know that 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. is the largest employer in your town. John Doe has just announced it is closing down, leaving thousands of people out of work.
Many soon-to-be ex-John Doe employees will subsequently be putting their homes on the market. People will be moving to another town with better job prospects.
Within a few weeks, the number of houses for sale increases to 12,000. In other words, supply doubles.
Job prospects in your town are poor. Consequently, few people are rushing to move in from outside. Given that employment prospects are weak, very few locals want to buy a new home. In fact, not many people can currently afford a new home. In other words, demand is low.
Those who want to buy a home have the upper hand because it is now a buyer’s market. Supply has increased while demand has declined.
If John Doe Inc. announced an expansion with more jobs, the opposite would occur. Demand for homes would rise rather than fall. It would become a seller’s market.
We can use the term 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 – Seller’s vs. buyer’s market
Calgary real estate expert Jared Chamberlain explains the difference between a seller’s and buyer’s market.