Whether you are a buyer or seller of real estate, it is important to understand the factors that affect the market. This will help you make the right decisions, for the right location, at the right time. Here are some of the most common points to consider:
Position in real estate cycle
The position in the cycle of the particular real estate market will have a bearing on prices. It will be a “seller’s” market, a “buyer’s” market or a “balanced” market.
In a seller’s market, the number of buyers who want homes exceeds the supply, or number of homes on the market. Prices increase, homes sell quickly, and a large number of buyers are looking to purchase from a minimal inventory of homes. These characteristics have important implications for the buyer, who has to make decisions quickly, must pay more, and frequently has conditional offers rejected.
In a buyer’s market, the supply of homes on the market exceeds the demand, or number of buyers. Home prices are reduced, homes are on the market longer, and fewer buyers will be available compared to the higher inventory of homes. The implications for buyers in this type of market are: more favorable negotiating leverage, more time to search for a home and better prices.
In a balanced market, the number of homes on the market is equal to the demand, or number of buyers. The prices are generally stable, houses sell within a reasonable period and sellers accept reasonable offers. The implications for the buyer in this type of market are that the atmosphere is more relaxed and there is a reasonable number of homes from which to choose.
Interest rates
There is generally a direct connection between interest rates and prices. The higher the rates the lower the prices, and vice versa. The lower the rates, the more people who can afford to buy their first home or an investment property. This puts greater demand on the market.
Taxes
An area with high municipal property taxes can be a disincentive to a purchaser. This could cause the real estate prices to drop. Provincial taxes, such as a property purchase tax, will restrict some buyers. Any future federal tax legislation on real estate for example, such as an increase in capital gains tax, could have a negative influence on investors.
Economy
Confidence in the economy is important to stimulate home buyer and investor activity. If the economy is “buoyant” and the mood is positive, more market activity will occur, generally resulting in price increases. Conversely, if the economy is stagnant, the opposite occurs, resulting in a decrease in activity and lower prices. If real estate purchasers are concerned about the economic situation, a predictable loss of confidence occurs in the market.
