The Business Cycle in Real Estate

The Business Cycle, that's what determines things that we like to call a "Buyers Market" and a "Sellers Market". If you're not familiar with these terms, let me bring you up to speed.

Buyers Market

A buyers market is essentially a market that is better for a buyer than it is for a seller. Housing prices are cheaper and inventory is up. A buyers market can be associated with a slump or recession in the economy, but this is generally not a good way to look at it unless it is extreme.

Sellers Market

A sellers market is essentially the opposite of a buyers market. There are lots of buyers, inventory is down and prices are up. A sellers market can be associated with a high in the economy, but again this point of view should be taken with a grain of salt.

Balanced Market

This is the ideal situation for what you want to see in the housing market. Supply and demand or buyers and sellers are just about equal and because of this prices are just about optimal.

Something very important to keep in mind about this graph is that the peaks do not always return to the same highs. The cycle can - and most often will -  peak at a different point; either higher or lower.

Driving Forces

There are lots of forces at work determining what "type" of market we are in.  I have listed a few that directly relate to Real Estate.

  1. Number of Sellers
  2. Prices of Homes
  3. Unemployment rates
  4. Interest Rates and Mortgages lending
  5. Consumer Confidence
  6. Population Migration

The Economy

 The housing market is normally a slow indicator of the economy because of the time involved in the purchase and sale of the home, to accurately asses the economy there are many immediate forces at work that can provide a stronger evaluation

Where are we today?

As I've been watching the number of sales and listings every day, I've been noticing a trend. All throughout November, December and some of January I've seen more listings than sales, about 10 more per day. As we've moved into the New year and progressed onward I've been watching the numbers balance out, we're getting about an equal number each day.

Although before the new year listings were slightly higher, it was only marginal. Today we are in a balanced market, and hopefully this will continue onward into the spring.

With the Bank of Canada announcing that it will not raise interest rates, and the fact that they are at record lows since 2010 it is hard to say which direction we will be going. Canadians will accrue more debt with the low interest rates, which directly affects purchasing, but as consumer confidence decreases todays balanced market may be the peak in the business cycle.