Hot vs Cold: Is San Diego a Buyer's Market or a Seller's Market?
When deciding whether it’s the right time to buy a home in San Diego, one of the first things you should look at is the state of the market. In other words, is it a buyer’s market or a seller’s market?
Buyer’s market AND seller’s market are terms that get thrown around a lot, so first let’s make sure you have a good understanding of what they really mean.
What is a Seller's Market?
In a seller’s market, or hot market, sellers have most of the negotiating power. A seller’s market is characterized by more buyers, lower inventory, quick sales, multiple offers and bidding wars on a single property, and properties selling over the list price.
Keep in mind that while there may be individual hot properties that attract a lot of offers, those individual homes do NOT in and of themselves mean you’re in a hot market. It’s only when this is the trend throughout an entire area and over a range of home prices in a short period of time that the market is considered a true seller’s market.
What is a Buyer's Market?
A buyer’s market, on the other hand, is considered a cold market because there is less competition. There are fewer buyers and higher inventories and properties typically remain on the market longer, so sellers are often more willing to negotiate.
This means that buyers often get their desired properties for less than the list price; in addition, sellers may be willing to pay some or all of the buyer’s closing costs or pay for updates and repairs.
What is a Neutral Market?
Then there is the third option - the neutral or balanced market. We typically see this type of market when interest rates are affordable and the number of buyers and sellers in the area is pretty even.
Inventory in a neutral market is stable - neither high nor low compared to previous months or years - and properties generally sell for close to the active list price.
Another term I will throw out there (because to me, it’s one of the best indicators of the state of the market) is absorption rate. Absorption rate, simply put, is the rate at which homes are selling (or being absorbed into the market) in a specific area. Are they selling at a rate of 10 per month? 25 per month? 100 per month?
MARKET SUPPLY (INVENTORY):
The supply in a housing market is how many homes are currently for sale (or the “active inventory”). If the supply is 50 homes, and the absorption rate suggests that 10 homes are selling per month, we can divide 50 by 10 and determine that we have about a 5 month supply of homes or inventory.
Many economists will tell you that a 6-Month Supply is a balanced or neutral market...
Anything less than six months supply starts becoming a seller’s market, and anything greater than six months supply becomes a buyer’s market.
What type of housing market is San Diego in right now?
That always depends on what you are looking for. Interestingly enough, parts of San Diego can experience strong seller’s markets (less than 1-2 months supply) while other parts experience buyer’s markets (greater than 6 months supply).
In some areas, both inventory AND days on the market continue to be very low. Yes, much of San Diego has been in the throes of a seller’s market since about 2010, so potential buyers should be prepared for stiff competition and negotiation.
However, I recommend that you determine with your buyer’s agent EXACTLY what sort of market you are buying in, so that you go in with the proper expectations.
It’s critical for you to know the market BEFORE you buy; otherwise you could end up wasting a lot of time and money!
During your free Buyer Strategy Session (and as we begin to work together), I will help you understand the current state of the San Diego housing market (especially for the area, price range, and type of home you are planning to buy). My goal is to help you have a complete understanding of what the process will be like and what you can expect.
Contact me to request your free Buyer Strategy Session.
Also Read: 5 Reasons to Hire an Exclusive Buyer's Agent
Also Read: When Is the Right Time to Buy in San Diego?