What is a Buyer's Market?

A buyer's market exists when there are more sellers than buyers in the market for a certain good or service.

How Does a Buyer's Market Work?

Housing is a common place to find a buyer's market. Let's say that ABC Town has 100,000 homes and that 3,000 of those homes are for sale. A big manufacturing plant in ABC Town is closing, leaving thousands of people out of jobs. These people want to sell their houses and move to another town with better jobs, and so they put their houses on the market, bringing the number of houses for sale up to 5,000.

Very few people are moving to ABC Town right now (due to its lack of jobs), and the people who already live in ABC Town are not really in a position to buy a new home and move, given the shaky job market there. Accordingly, the few people who are interested in buying a home in ABC Town right now have the upper hand. There are more sellers than buyers, making ABC Town a buyer's market.

Why Does a Buyer's Market Matter?

In a buyer's market, a buyer often can acquire goods and services at a lower cost. In our example, a buyer's market means that a lot of sellers are competing for customers, and they are therefore more likely to accept less money for their homes. This can translate into big savings for buyers, who might also be able to dictate other terms of the deal (such as who pays the closing costs).

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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