Buyers’ Market vs. Sellers’ Market

Is it a buyers’ market or a sellers’ market? Why does it matter? These are two important questions I’ll answer here.

First, why does it mater? If you are looking to purchase a property and it is a buyers’ market you can try offering a price lower than the asking price, ask the seller to pay some or all of the closing costs, and during escrow ask the seller to pay for repairs. On the flip side if it is a sellers’ market the buyer needs to consider offering more than the asking price, have sufficient funds to cover their closing costs (about 3% of the purchase price), and be selective on requests for repairs made to the seller. Obviously it’s important to be aware of this so one can take advantage of their position or beat out the competition. The difficult question to answer is what type of real estate market we are in.

When there is more supply than demand it is a buyers’ market and when there is more demand than supply it is a sellers’ market. So now the question comes down to supply vs. demand. A common way of assessing this is to calculate the Absorption rate, i.e. how quickly a home will typically sell in the current market. Absorption rate is calculated by dividing the amount of inventory by how many properties are selling in a month.

1 to 4 months supply of homes is a Sellers’ Market
5 to 6 months supply of homes is a Normal Market
7 or more months supply of homes is a Buyers’ Market

The real estate market we are in today is not an ideal market to calculate the absorption rate because of short sales. When an offer is submitted to a bank on a short sale it typically takes 60 to 90 days to hear back and during this time the listing agent usually puts the property into a status of Contingency, which removes it from the actively supply count. In this state the property is not actively being sold neither is it in escrow. The following data is a look at the San Diego County real estate market as of December 26, 2009. First we look at San Diego County by geographic regions then break down the numbers by price.

All of San Diego County
Active homes for sale: 8491
Contingent homes: 4280
Sold homes in last 30 days: 2661
Absorption rate of active homes: 3.2
Absorption rate of active and contingent homes: 4.8

North San Diego County
Active homes for sale: 3267
Contingent homes: 1382
Sold homes in last 30 days: 984
Absorption rate of active homes: 3.3
Absorption rate of active and contingent homes: 4.7

Central San Diego County
Active homes for sale: 2425
Contingent homes: 1035
Sold homes in last 30 days: 710
Absorption rate of active homes: 3.4
Absorption rate of active and contingent homes: 4.9

South San Diego County
Active homes for sale: 883
Contingent homes: 1110
Sold homes in last 30 days: 504
Absorption rate of active homes: 1.75
Absorption rate of active and contingent homes: 4.0

East San Diego County
Active homes for sale: 745
Contingent homes: 459
Sold homes in last 30 days: 232
Absorption rate of active homes: 3.2
Absorption rate of active and contingent homes: 5.2


Up to $200,000 Homes
Active homes for sale: 1589
Contingent homes: 1571
Sold homes in last 30 days: 647
Absorption rate of active homes: 2.5
Absorption rate of active and contingent homes: 4.9

$200,001 to $400,000 Homes
Active homes for sale: 2227
Contingent homes: 2006
Sold homes in last 30 days: 1170
Absorption rate of active homes: 1.9
Absorption rate of active and contingent homes: 3.6

$400,001 to $800,000 Homes
Active homes for sale: 2403
Contingent homes: 729
Sold homes in last 30 days: 713
Absorption rate of active homes: 3.4
Absorption rate of active and contingent homes: 4.4

$800,001 to $1,500,000 Homes
Active homes for sale: 1265
Contingent homes: 80
Sold homes in last 30 days: 163
Absorption rate of active homes: 7.8
Absorption rate of active and contingent homes: 8.3

$1,500,001 to $5,000,000 Homes
Active homes for sale: 977
Contingent homes: 27
Sold homes in last 30 days: 47
Absorption rate of active homes: 20.8
Absorption rate of active and contingent homes: 21.4

$5,000,001 plus Homes
Active homes for sale: 190
Contingent homes: 2
Sold homes in last 30 days: 2
Absorption rate of active homes: 95.0
Absorption rate of active and contingent homes: 96.0

Note: Small towns and communities far from the major populated areas were not used in the breakdown calculations of the county, which is why their sum does not add up to San Diego County as a whole.

It is easy to see that San Diego County is in a sellers’ market for the majority of the categories. I don’t expect prices to rise as long as there are distressed homes on the market but once they are gone don’t be surprised to see prices jump 15% to 20% within a year.

Even though it is a sellers’ market there are still good reason to buy real estate now.

- Historically low interest rates (There are predictions the Feds will raise rates about three times in 2010)
- Cost of renting similar to that of owning
- $8000 tax incentive for first time buyers, $6500 for other buyers
- Depressed prices

If you want to know the absorption rate of a particular area contact us at 877homes@gmail.com

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