A buyer's market refers to conditions in the sales of any type of product, where supply significantly exceeds demand. If you have a great supply of an item, the result is usually to lower prices for the consumer, or “buyer.” This can be wonderful for the consumer, but not so terrific for anyone trying to sell something when supply is high. A buyer's market is as poor for the seller as it is good for the buyer.
You will see the term used in reference to real estate. In fact, this is frequently what buyer's market means. Essentially, within an area, homes for sale greatly exceed the number of people who wish to buy a home. Home values drop and many properties remain on the market for months since the buyer has considerable discretion in being able to choose a home at the best value.
Sometimes, a boom in construction can create a market for buyers, especially if real estate developers have overestimated the amount of people who want to buy new homes. If building large real estate developments is coupled with falling employment rates, the real estate market may be perfect for those who do have stable jobs and can afford to buy a home.
Falling employment rates, or refinancing during a seller’s market, when demand exceeds supply, can create problems for homeowners. Inability to pay your mortgage may necessitate selling your home, and often some sellers are in a hurry to sell their homes before home values drop more, or before banks foreclose on their loans. They are most likely to take a lower price than the list price for their homes if they absolutely must sell in a hurry.
The buyer's market can create something of a panic for people who have purchased real estate for investment. When home purchase prices go down, more houses may emerge on the market to be sold quickly before prices drop lower. Usually this panic only enhances the buyer's market, because there are even more homes available, and more room to bargain for a desired price.
Both buyer’s and seller’s markets can create distress, in the former case for the seller, and in the latter for the buyer. Trends tend to reverse and change, suggesting that if you can hold onto your home through a buyer's market, it’s likely the prices will once again change to your advantage perhaps even with a few months.
Along with lower prices and lower demand, the buyer's market affects interest rates. When people aren’t buying homes, banks aren’t making money off new loans and the people paying interest on those loans. Interest rates on loans tend to drop, and buyers can take advantage of this because it tends to spark a high degree of competition in the banking world to offer people the best deals on loans. Further, during a buyer's market, banks are more likely to consider lending to people with less than perfect credit.
