In the seller’s market, obviously, the seller has the negotiating advantage as there is more demand than supply. At equilibrium, neither party has a clear or distinct advantage. In a buyer’s market the buyer has the upper hand as there is more supply than demand.

The indicator is there is no demand. Buyers are unwilling to buy at that price. Supply increases until prices fall. Price reductions are a result.

I believe we will end up with another very good market in a few years. We have a limited supply of buildable land. Growth Management Act and various other government schemes to manage development. The GMA adds about $200k to the price of a house. We have a strong local economy.

Real estate is a little unique in that there tends to be latency. In a downturn, sellers take a while to figure out there house is not worth what they thought and it has no curb appeal in its current state. In an upturn, Sellers don’t raise prices fast enough resulting multiple offers and a mutually accepted contract within days if not hours. Sticky Price Theory.

Michael:

Very interesting. It's fair to say my economics background could use an update, but how do you think the majority of the population defines a buyer’s market? I would venture to guess that it’s a more generic definition of “a time when a buyer has an advantage over the seller.” In this case, the true definition makes sense. A buyer does have an advantage when he/she has more than six months of inventory to peruse.

Is it fair to say price reductions (both on the seller and buyer’s terms) are a result of a buyer’s market, but not necessarily an indicator?

Economist define a buyer's market as generally having 6 months or more of inventory. Less than six months is a seller's market. six months is market equilibrium.

Price reductions aren't part of the calculation as they can be negotiatied in a hot market under certain circumstances.