For Sale sign with SOLD notice in the front yard of a large house.

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If you're looking to buy a home, you may keep hearing that it's a seller's market. But what exactly does that mean?

Generally speaking, a seller's market means that those listing their homes have the upper hand and can command higher prices for their properties. And that's precisely what happened during the third quarter of 2020.

The typical homeowner who sold during this period saw a gain of $85,000, according to ATTOM Data Solutions. This represented a $10,000 increase compared to the previous quarter and a $19,000 increase from the third quarter of 2019.

Why are sellers making so much money on their homes?

In 2020's third quarter, the typical home seller saw a 38.6% return on investment compared to what he or she originally paid for his or her home. The quarter prior, the typical return on investment for a sold home was 37.5%, and a year ago, it was 33.7%. All told, profits and return on investment for home sales were the highest this past quarter since the U.S. economy began to recover from the Great Recession in 2012.

Why such a strong housing market for sellers? It largely boils down to a lack of inventory and high buyer demand. 

Many sellers held off listing their homes this year due to the coronavirus pandemic, so buyers didn't have that many properties to choose from. Meanwhile, mortgage rates fell to historic lows, pushing buyers to take advantage of affordable home loans. Both factors together made it possible for sellers to see major profits this past quarter, as buyers were willing to duke it out via bidding wars to snag homes before mortgage rates climbed. 

Is now a good time to buy a home?

It's certainly a good time to sell a home. But buying is a different story. Although mortgage lenders are offering competitive rates right now, much of that savings is offset or even eliminated by higher home prices. Plus, the process of buying a home may be frustrating if you have a healthy budget to buy but aren't seeing properties you like. If you try to buy now, you could end up settling for a home that needs extensive work or simply doesn't suit your needs and taste. 

As such, it could pay to hold off on your home search and see if more inventory opens up in 2021. There's a good chance mortgage rates will stay low well into 2021 and potentially beyond, so if you delay your search for a few months, you won't necessarily lose out on an affordable mortgage. What you might gain, though, if the housing market cools off, is a less expensive home price. 

Waiting until 2021 to buy could also give you a chance to save up more money for a down payment. That will give you more flexibility if home prices stay inflated and you're inspired to make an offer regardless.