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Who benefits from a balanced market?
How do you know if we’re in a balanced market?
Where we see the market headed in 2024
With the recent rise in inventory in Guelph, we’ve quickly gone from a sellers market to a balanced market. But what exactly does that mean?
What is a balanced market?
A balanced market is when there is an equal amount of inventory to satisfy buyers need and houses are selling in an orderly fashion. Standard negotiation and comparable prices are in play and neither buyers or sellers have an upper hand.
With the recent rise in inventory in Guelph, we’ve quickly gone from a sellers market to a balanced market. But what exactly does that mean?
Who benefits from a balanced market?
In theory, everyone benefits from a balanced market. Houses are selling at reasonable velocity, buyers are able to get their conditions in an offer and feel comfortable that they are making an informed decision. Sellers are not getting record high prices for their homes, but they are getting the going market rate based on recent comparable sales.
How do you know we’re in a balanced market?
Typically, markets are determined by the months of inventory (MOI) vs sell through of previous months. Essentially, if no new homes were listed as of today, how long it would take to sell through the current inventory based on recent sales trends. Although technically we are not in a balanced market, we are very quickly approaching it.
Seller’s market: less than 4 months of inventory (MOI)
Balanced market: 4-6 months of inventory (MOI)
Buyer’s market: 6 months plus of inventory (MOI)
We’re going to take a look at the characteristics of each:
Sellers market
Last year (2022) was an extreme sellers market. This is where low inventory levels (less than 4 months of supply) to meet demand of the buyers in the market. When this happens, there is an extreme imbalance of supply (available homes for sale) vs demand (number of buyers who want to buy homes)
In this market, buyers need to make their offers as attractive as possible. This is because they’re going to be competing with other offers for the home. Consider it like an auction. Variables to an offer include price, conditional offers, closing date, deposit and downpayment and more. This extreme market is not sustainable, as sky is the limit on where prices can go. However, eventually affordability becomes out of reach for many.
Comparable prices are often disregarded in this scenario. A home is “worth what someone is willing to pay” and in an extreme sellers market this can be anything.
Balanced market
This market is as described- a balanced housing market. There is enough supply to meet buyers demands, but no so much that buyers are in full control of prices. An orderly sale process happens where comparable prices of like properties are used. Home sales are close to the listed asking price as long as sellers list it appropriately.
There may be a periodic bidding war in a balanced market but it’s unlikely. A real estate agent who knows the local market will guide you to a listing strategy that makes sense for the seller and can justify this to the agent of a potential buyer.
Conditions are common in a balanced market, mainly a financing condition. This is so that a buyer can obtain the best mortgage rate and get a home appraisal. Additionally, the buyer may request a home inspection condition. Lastly, the seller may receive an offer that contains a condition of a sale of property (SOP). This condition may be the best offer a seller will receive and so it is accepted (often with an escape clause)
Buyers market
In a buyers market, the number of homes available exceeds 6 months supply of inventory. A real estate professional listing a home in this market needs to be very aware of market pricing. This is because what sold last month may not be the same as this month. New listings could pop up and a higher or lower price and sellers need to be nimble.
For buyers in a buyers’ market, this is their ideal situation. There are few potential buyers so sellers are trying to make their homes as attractive to you as possible. As a result, this means it’s a great time to negotiate the list price as their is downward pressure on pricing.
Buyers are in a better position to have many conditions in this market. Sellers, are a lot more willing to accept them. In recent years we haven’t seen this type of market so it is catching some people off guard. Canadians are used to seeing price appreciation over time.
Where we see the market headed in 2024
We openly publish our 2024 Guelph real estate predictions. But of course, if we knew the answer we’d be geniuses. With mortgage interest rates playing a major role in the current market, we’ll be watching for future rate hikes. For every increase, we could expect market pricing to decrease. However, once we see rates start to decrease, expect more buyers to come into the market.
We do anticipate pricing to remain at this level for the coming few months. Potentially, we see even more new properties hit the market late in the 4th quarter. It is possible we see 4 months of available inventory in Guelph.
We’re also seeing a rise in the traditional vendor take back mortgage. This would indicate that we have a number of buyers in the market who may not be able to qualify at bank rates. This strategy could be a lucrative option for a seller that doesn’t need the funds from the sale immediately. Read the blog post for more info.
Questions on the Guelph real estate market?
As Guelph real estate agents with Keller Williams Home Group Realty we know the local market! Give us a call.
