Whether you’re a first-time homebuyer or new to selling property, the housing market can be complicated and confusing. With a lot of moving parts and factors involved, it’s best to know the basics before making a major financial decision.

The good news? We’re here to help. So, let’s discuss the ins and outs of the United States housing market.

Understanding the housing market

The term “housing market” – also known as the “real estate market” – is used to describe the network of stakeholders involved in buying and selling homes. Simple, right? 

Not so fast. Although it sounds pretty straightforward, there’s more to it than meets the eye. There are several different types of players in the housing market, each with their own goals and intentions. Generally, the most prominent of these parties include:

  • Homeowners: Those who are selling their properties. 
  • Real estate investors: People who buy and sell properties to make a profit.
  • Brokers: Agents who facilitate the buying and selling process, representing a seller or buyer.
  • Lenders: Who control credit requirements, impacting a buyer's ability to access credit for purchasing a home. 
  • Homebuyers: People interested in purchasing real estate.

Buying and selling property is a bit more complicated than the typical transaction. After all, homes can be expensive. According to the National Association of Realtors, the median sale price for an existing house was $410,200 in June 2023 – the second highest ever recorded. So, it’s wise to time your real estate decisions for when market forces are in your favor.

In other words, consider whether or not you’re in a buyer’s or seller’s market. Don’t know the difference? Allow us to explain:

  • Buyer's market: The refers to when ome sales are slow, there are many available properties and prices are in decline. These factors make it more difficult for homeowners to sell their properties, giving buyers an upper hand when it comes to negotiation.
  • Seller's market: By contrast, this term means home sales are surging, properties are in short supply and real estate prices are rising. In turn, homeowners have an edge over buyers who have to compete with other offers.

Alternatively, you may also be in a balanced market. This is normally when there’s 3-6 months of housing inventory listed in an area at a given time.

What determines a buyer's or seller's market?

The short answer: It’s complicated. However, we can break it down into a few fundamental concepts, starting with the laws of supply and demand.

  • Supply: This law holds that higher prices boost supply while low prices tend to diminish it. This is because consumers are less willing to buy goods at a greater cost, resulting in a larger quantity being available. 
  • Demand: Conversely, demand levels rise for a particular good when prices are low, as consumers are more willing and able to purchase. Likewise, demand tends to decrease as prices rise for the opposite reason. 

In theory, supply and demand work together to establish who has a competitive advantage in the housing market. However, there are also other noteworthy factors involved. With regards to real estate, we’re talking about housing stock, interest rates and other economic variables.

The impact of housing stock 

Housing stock refers to the total number of residential properties available for sale in a particular geographic area. Real estate analysts pay close attention to housing stock because it’s a great indicator of supply.

The type and condition of these properties also matter. For example, a town rich in single-family homes may experience a different real estate market than one dominated by apartment buildings. According to the Congressional Research Service, you’re more likely to encounter higher home prices with a shorter supply of residential properties. But, if there are many options available, you may see lower, more affordable listings.

How interest rates affect the housing market

Interest rates significantly drive the health of the housing market. Borrowing is more affordable when rates are low, making homeownership more accessible. In turn, new homeowners are more likely to seek out and purchase property.

Conversely, high interest rates deter would-be buyers from entering the market. Because homes are less affordable, fewer people are willing to take out a mortgage. Notably, they also discourage sellers, who are less willing to “give up” their more favorable rate for a higher one if they’re purchasing another property. In short, interest rates alter the cost of borrowing, which means they’re a significant indicator of housing demand.

On a related note, credit standards also matter. Strict requirements discourage homebuyers because it’s harder for them to borrow. If standards are too lax, however, it may be too easy for buyers to take out mortgages they can’t afford — as was the case with the 2008 housing crisis. 

Additional factors to keep in mind

Lastly, it’s important to consider other factors that could potentially alter the state of the housing market. These include:

  • Economics: High unemployment, for instance, could lower consumer spending as budgets wear thinner. Likewise, people may be less likely to take out a mortgage if they anticipate a recession in the near future.
  • Seasonality: The housing market tends to slow down in winter and picks up in the summer. 
  • Legislation: Government policies and laws also impact the market. For instance, tax credits may temporarily boost demand, whereas zoning regulations may limit the supply of properties in a given area. 

Ultimately, participating in the real estate market is a major financial decision. Whether you’re a buyer, seller or budding investor, knowing the market dynamics at play is key to negotiating a good deal. With these considerations in your back pocket, you’ll be well on your way to success. 

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This content is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.