You find yourself at an after-work party when someone starts discussing the events of the day. A topic likely to come up is the real estate market. Someone at the party is either looking to buy a home or sell a home, and the next thing you know everyone is talking about their opinions on the real estate conditions at the time. Before you know it, someone has said "It's a seller's market out there". You nod your head because you don't want to seem as if you don't understand what they are saying. However, the truth is that you really don't quite get it. There is nothing to be ashamed of about that, you just will want to learn these terms so that you are not left sounding uninformed.


What Makes Up A Seller's Market?


There is not a textbook definition of a seller's market. Rather, it is an expression used to convey a complex set of ideas into one simple phrase. In general, the idea behind a sellers market is that there are a lot of buyers wanting to purchase real estate but not enough homes on the market to meet that demand. The Realtor's Association of Hamilton Burlington explains that a seller's market often shares a few different characteristics. They include the following:


  • High Employment Rates
  • Low Interest Rates
  • Government Changes To Laws
  • A Rising Encouragement Of Home Ownership



Each of these factors play a vital role to the development of a so-called "seller's market", and we will explore why each of them matter.


High Employment Rate


How is a person supposed to afford to purchase a home if they do not have a job? This method has been attempted before, to disastrous effect in the years leading up to the financial collapse of 2008-2009. It is far more typical however to have a seller's market develop when employment is high and people have the money to pay their mortgages.


The Economist has an article defines "full employment" as an unemployment rate that is at five percent or below. This has been the common understanding of what it means to have a country that is "fully employed". Everyone knows that it is not possible to literally get every single person into a job. The closest that a country generally gets is within that five percent number. If a country is experiencing full employment, then a seller's market in real estate may be about to occur.


Low Interest Rates


A sustained period of low interest rates are designed to spur on all forms of lending. This obviously includes lending in the form of mortgages. The Federal Reserve sets interest rates for the nation. It is important to keep an eye on those rates. They are what banks and other lenders use to determine what they will set their mortgage rates at. Investopedia says that lower mortgage rates encourage more people to get a home. The lower monthly payment opens the doors to more home buyers.


Government Changes To The Law


The government has an incredible amount of power when it comes to how the housing market operates. They can pull the levers of regulation or de-regulation at any time. They can make new laws or tear down ones that they believe no longer serve the function that they were meant to when they were first written.


Lenders must follow the regulations set up by the government when it comes to lending out mortgages. This means if the government gives them broader authority to lend, then they are very likely to take advantage of this and get more mortgages out to the public.


A Greater Sense Of Pride In Home Ownership


The amount of pride that the public takes in home ownership waxes and wanes through various points in history. The more that home ownership is trumpeted as a social good, the more effort people may put in to getting a mortgage.


When a few of these factors or perhaps even all of them come together, the seller's market is on. The next time you hear that term, you can understand what it means to a greater degree.

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