Many people who are seriously thinking about buying or selling are familiar with buyers’ markets and sellers’ markets. Realistically, though, the real estate market can be divided into three phases: buy phase, hold phase, and sell phase. So what are the indicators of each of these phases, and most importantly, which phase are we in now?
The buy phase is characterized by low prices, interest rates, and sales volume, but high inventory. Paradoxically, another characteristic is low demand, because high demand represents more competition and thus lesser chance for each individual buyer to strike a deal. This is when the average buyer can afford the highest percent of the homes currently on the market.
Hold phase may be an unfamiliar concept to some of you. That’s the time when real estate investors want to hold onto the properties they have bought so that they can accrue value before being sold later. The hold phase is simply a period in between a buy phase and a sell phase that likely has characteristics of both.
One may guess the characteristics of a sell phase are opposite those of a buy phase, but this isn’t strictly the case. Yes, the sell phase has low inventory. Each other category is slightly different. Prices and interest rates are typically rising, not simply a high, flat value, and sales volume is still slow. The other factor is not number of buyers but a statistic called yield spread. Yield spread is the difference between the rates of a 10-year Treasury Note and a 3-year Treasury Bill, and a value below 1.0 is an indicator of coming recession. 1.0 was the exact value of the yield spread in June of this year, and is expected to hit zero around the same time next year. In fact, the current market meets all five criteria to be considered a sell phase, as prices and interest rates are still rising, and sales volume has been flat since 2015. Home prices are expected to drop within the next 12 months, though, so if you are planning to sell, do it now.