Dramatic Cooling off Causing Switch to Buyers’ Market

Cold person

According to Michael Orr of ASU/WP Carey School of Business, the change in market balance accelerated during October reaching a shocking pace we almost never see. Only in the second half of 2005 have we seen demand drop at this exceptional speed. Demand has been falling dramatically for the past 3 months and October saw that rate increase rather than moderate. The market is already in the balanced zone and we may well be in a true buyer’s market by the time we reach December.
When demand falls suddenly like this, active listings pile up because they are not going under contract as they normally would. On top of this, October was the busiest month for new listings since April 2011. Supply is therefore building fast, especially when expressed in months of supply, since the monthly sales rate is in steep decline.
Sellers no longer have any significant bargaining power and will soon be at a disadvantage in negotiations with buyers. Buyers will find themselves being treated with unusual respect and many will be able to negotiate concessions. Sellers who list homes priced well over market value are increasingly unlikely to get showings, never mind offers. This is an amazingly swift turn round in a market that heavily favored sellers as recently as July.
The reason for the decreased demand is not really clear. Interest rates, which rose in the summer months are declining again and prices, though increased from last year, have not gone up so drastically as to cause this kind of a cooling off. More than likely, negative media coverage & economic uncertainly is more the cause of buyers sitting in a holding pattern. Clearly the average consumer’s confidence is fragile. Making a big decision like buying a home requires a reasonable foundation of confidence.
According to Michael Orr from the WP Carey School of Business at ASU,