Buyer’s Market Or Seller’s Market?
by Brandy Peterson
Canadian Real Estate, not unlike the stock market, has shifted and changed through high and low markets over the past hundred years or more. These shifts and changes follow a predictable pattern. It begins with a real estate boom, where property values rise and the time it takes to sell a home is reduced. Next, it trends into a slower, falling market where property values either stay flat or decrease, and finally it moves into a recovery period where values and demand start to build up again until the cycle is complete and the market is back to booming.
In general, it is often a ten year period (give or take a few years) from real estate boom to real estate boom. However, the number of years spent in each of the three phases of the cycle can vary.
What causes these swings in the market? Supply and demand is a heavy influence on property markets as well as factors such as interest rates, lending policies and economic growth.
Here is what you can expect to notice during each phase of the real estate cycle. Throughout a real estate boom, property values will rise at a fairly quick rate, rents will increase, banks will offer more competitive lending with buyers having an easier time qualifying for mortgage funds, and homes will not stay for sale long before they sell. The opposite happens during a real estate slump. During a slow market like this the public attraction to real estate is diminished. The final phase of the cycle is recovery. The market starts a slow improvement where the demand begins to outpace the supply until the market is booming once again. These ups and downs need not be feared as the different stages of the cycle afford opportunities to different investors. A booming market has good outcomes for sellers and owners holding tenanted real estate. A slower market has opportunities for first time buyers when affordability is improved. And a stable, recovering market is a less stressful time to buy and sell.
These phases are highly repetitive and predictable. The best protection for the sometimes drastic swings of these cycles is to enter the real estate market with a long term investment plan, recognizing that values will rise when the market cycles into a period of boom. Strong and steady growth can be achieved when properties are acquired and sold at the right time.
Does this mean you should never purchase a home in a falling market? Not at all. For a variety of reasons a purchaser may find themselves needing a home when the risk of a market slump is high. In order to protect their investment, a buyer can negotiate a discount off the list price, purchase in a desirable location, and be prepared to hold the home for a number of years until the market not only regains the values that may have slipped, but increases and builds equity as well.
The above are the cycles real estate encounters. It’s not significantly different this time around than it has been in the past. If history repeats itself, the market will boom again. Real estate will always be a sound and steady investment when handled properly, and the real estate cycles are taken into consideration. Feel free to contact me to chat about the stage of the cycle we are in currently, I am always happy to talk about real estate!
Brandy Peterson is a real estate professional living in Powell River, BC. You can reach her by e-mail at firstname.lastname@example.org , on Twitter (@branpeterson) or by calling 604-344-1234.