Buyer’s Market vs. Seller’s Market

A buyer’s market is usually considered to be when there are more homes for sale than there are buyers to buy them. Similarly, a seller’s market is considered to be when more buyers want to buy houses than there are houses for sale. Thus, home prices are expected to be rising and not very negotiable in a seller’s market, while home prices are expected to be falling and negotiable in a buyer’s market. This is much too simplified to reflect the Silicon Valley housing market.

Sales Price vs. List Price

In Silicon Valley, homes in cities with high prices, such as Atherton, Hillsborough, and Los Altos Hills, most often sell below the listing price (or asking price). This does not mean that it is a buyer’s market in these areas. It just means that buyers and sellers generally expect the sales price to be lower than the asking price.

To spot that the balance between buyers’ expectations and sellers’ expectations is changing, look to see if the sales price vs. list price is changing. In the year 2000, the graph above shows a dramatic peak in sales price vs. list price. Then, in about one year, sales price vs. list price fell from its peak to its all-time low.

Looking at the sales prices, indeed, house prices fell dramatically during this period. Seller’s expectations are generally heavily weighted by recent past sales. They feel they would be giving away money if they sold for less. Sales price vs. list price is one of the most apparent signs that expectations and needs are changing.

Days On Market

If you define a buyer’s market as when buyers can easily buy a house at a price they want to pay, then you might say there would be many houses for sale, and the length of time to sell them (days on market) would be long giving buyers ample time to choose which home they want to buy. This would imply that sellers feel forced to sell their homes. They put their house up for sale and just wait for a buyer to pay an acceptable price. This rarely happens in Silicon Valley. Sellers generally do not like to have prospective buyers wandering through their homes. Sellers rarely tolerate long days on market. Also, if days on market is long, that means buyers aren’t motivated to buy a home. Does it make sense to call a real estate market a buyer’s market when buyers don’t want to buy homes? If the number of homes available increased dramatically through new construction, then calling it a buyer’s market could make sense because the availability was increased rather than buyer activity decreased.

Sellers Are Buyers

In Silicon Valley, very few houses are being built. Even new condos and townhouses haven’t been built in large quantities compared to the number that already exist. If someone sells a home, they are very likely going to buy a home, perhaps in a different city but quite likely still in Silicon Valley. With only a low supply of new homes, buyer’s market vs. seller’s market doesn’t describe the Silicon Valley real estate market very well. Changes in local home prices are driven by economic changes, not changes in supply.

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