Will There Ever Be Another Buyers Market?

Will There Ever Be Another Buyers Market?

Continuing the conversation… empathizing with all those poor souls (buyers) who have had to slog through the longest running, highest appreciating, craziest-making Sellers Market ever. Which begs the question: Will we ever have another Buyers Market? And what would it look like if we did?

My short answer is:  No, we’ll probably never see another Buyers Market again. At least not in the same sense that we’ve always thought about Buyers’ Markets in the past.  Too many fundamental factors have changed and the huge demographic shift of an aging population on top of thirty years of slow growth has altered the normal calculus between supply and demand.

In the past, Buyers and Sellers Markets were defined by something called the “unsold inventory index”  (the pace of sales juxtaposed with the current supply).  For most of my thirty five years in the business,  between four and six months’ worth of inventory was always considered a “balanced market”,  one with relative equilibrium between buyers and sellers.  

Anything less than four months was considered a sure-fire Sellers Market, one where too many buyers had to compete for too few properties with sellers in the enviable position of calling  the shots.  And Buyers Markets?  Those were the other exceedingly rare interludes when the inventory ballooned above a six month’s supply while the balance of power shifted to the buyers side with more days on market  and a lot more price reductions. 

For younger buyers whose real estate experience doesn’t extend that far back, the last ten years have been a Sellers Market on steroids.  There’s never been a market with inventory this low or one so completely lopsided in the Sellers favor.  It has been a perfect storm of epic proportions, driving prices to dizzying heights (for sellers) while squeezing opportunities to all-time lows (for buyers).

For those who want to know how the Unsold Inventory Index is calculated:  Start with the average number of single family home (sfr) sales over the last three months. (In Santa Cruz County,  that’s around 100 sales a month).   Then count the current number of active listings (approximately 350 sfr homes). Then ask:  If homes continue to sell at the same rate they have been, how long will it take to use up the current supply? 

The simple math says we have 3.5 months of available supply which means that according  to conventional wisdom we’re still firmly rooted in a Sellers Market.  But since the unsold inventory index is also higher than it’s been for years, buyers are starting to notice a few of the telltale signs of softening out there in the marketplace and more than a few sellers have also started to panic!