Buyer's market vs seller's market: how to tell the difference

Real estate markets swing between favouring buyers and favouring sellers. Knowing which one you are in helps you set your price, your expectations and your negotiation strategy.

The short version: a market is a buyer's market when supply is high and sales are slow, and a seller's market when homes sell quickly. Two numbers show the balance: the sales-to-new-listings ratio and months of inventory.

The sales-to-new-listings ratio

This compares how many homes sold in a month with how many new ones came on the market. Many boards treat a ratio below about 40% as a buyer's market, around 40% to 60% as balanced and above about 60% as a seller's market. The Canadian Real Estate Association publishes it nationally, and local boards publish it for their cities.

Months of inventory

Months of inventory shows how long it would take to sell all current listings at the current pace. Very roughly, under four months favours sellers and over six months favours buyers. The ranges are rules of thumb, and local boards define their own, so check the numbers for your city and property type.

Other signs

• Days on market: the time homes take to sell.
• Sale-to-list price: whether homes sell above, at or below the asking price.
• Multiple offers: common in seller's markets.
• Price reductions: more common in buyer's markets.

What it feels like

In a buyer's market you may have more time, more choice and more room to negotiate. In a seller's market, homes sell faster, often with multiple offers, and buyers compete.

What to do

• Buyer's market: take your time, negotiate price and conditions, and ask for repairs or credits.
• Balanced market: price accurately and expect reasonable negotiation.
• Seller's market: be prepared to move quickly, set a firm limit and avoid overpaying.
• If you are selling, price against current competing listings, and be realistic in a buyer's market.

Example

A city with 4,000 sales and 8,000 new listings in a month has a 50% ratio, which suggests a balanced market. If sales fell to 2,800 against the same 8,000 listings, the ratio would be 35%, a buyer's market.

Look at your segment

Markets differ by neighbourhood, price range and type of home. Condos can be in a buyer's market while detached houses are in a seller's market, so look at your own segment. Local boards and your agent can give the latest numbers.

How rates and the economy affect it

Higher interest rates reduce demand, because buyers can borrow less, and can shift a market toward buyers. Lower rates can do the opposite. Our guide on the Bank of Canada explains the link.