A buyer's market is technically defined as: "A market condition characterized by an abundance of goods available for sale."
The in-depth definition from the same source is: "When a buyer's market exists in commodities, the buyer is able to be selective in purchasing contracts, as there are many individuals wishing to sell. Furthermore, these buyers will generally be able to purchase contracts at lower prices than those that were previously prevalent."
The simple version is: when no one else wants a product of value -- buy it, because the price will be lower whereby you'll be able to maximize your investment for future gain. In essence -- buy low, sell high.
When it comes to purchasing real estate, it's not as easy as investing in your 401K or savings account. Those are simple. You can select as little as $1 to invest each month or as high as the law will allow -- thousands per year.
Most people really don't worry about how the stock market ebbs and flows as they are using the practice of dollar cost averaging to invest: "Dollar cost averaging is the practice of investing or saving money at specific times, regardless of market conditions or your personal financial outlook," according to a beginners guide to investing from About.com. The idea is that if you keep investing over the market levels (low and high) you will, through the law of averages, make money in the long haul.
The challenge with that type practice in real estate is that you can't slip into real estate investing. We don't buy our housing investments month after month with prices up and down. Instead, we slap down the down payment when it's time to buy. And wherever the market is, is where we start.
The best strategy for real estate and the best way to make money in real estate is to buy low, when the conditions are in the favor of the buyer to buy. Your start-up purchase is where you "begin" your investment growth -- and that's why I submit to my buyer friends the above headline question, again: "It's a buyers market. So when are you going to buy?"
Today in many markets you can buy a house for 5 to 10 percent below asking price. For a $300,000 purchase, that's between $15,000 and $30,000 off your mortgage. On a 30-year fixed rate mortgage at 6 percent, that reduction in mortgage amount would save about $180 per month (more than $2,000 per year).
In addition, many sellers are willing to help with closing costs just to sell their house. For example, in Fairfax County, Virginia (just outside the Washington, D.C. area) half of the 3 bedroom 2 bath single-family homes sold in the last 30 days included a seller subsidy ranging from $500 to $15,000 (the average seller subsidy was $8,790).
Then there are the prices. While they have been flat over the last couple years, they are starting to increase. This is where your research on the housing market must turn local. The national numbers mean nothing to you when it comes to investing in real estate. Where are your average prices? Are they flat, deflating or appreciating?
Nevertheless, there are hot pocket markets. In the DC area, there are several zip codes that, when looking at the numbers, are technically in sellers markets. In these areas, homes are selling in under 60 days, prices are up, unit sales have outpaced the level from a year earlier and total sales volume is expanding. The thing is, though, the pressure from surrounding zip code markets keep the prices from escalating as fast as their potential.
Let's review -- you have plenty of housing inventory from which to choose. Sales are slow, so sellers are offering thousands of dollars in incentives to tempt you to buy. Prices are flat. Interest rates are still historically low. Sounds to me like the buyer who has been waiting on the sidelines needs to get off the fence and pull out his checkbook.
From the November 2007 Armstrong Field Real Estate online newsletter - Real Estate Update