Regardless of whether the market is up or down, buyers have one question: is this the right time to buy?
Understandably, buyers want to know the direction of the real estate market. Are prices on the way up or down? Am I buying at the peak? How long before a rebound? Should I wait for price-drops?
The honest answer is nobody knows! Even economists who specialize in real estate markets have a difficult time predicting what’s going to happen.
Before looking at the real estate market, economists must take into consideration a multitude of variables, such as:
- Interest rates a year from now
- Gasoline and food costs a year from now
- If the average household income is appreciating at the rate of inflation
- The level of immigration
- The volatility of world financial market’s
- The impact of the US upon Canadian market’s
- Employment levels
- The state of national economies
These amongst other key economic indicators form the foundation for outlooks on the real estate markets.
To produce outlooks for the real estate market economists must study social and demographic changes that drive demand. Factors may include:
- Number of first time home buyers
- Consumer preference for urban V.S Suburban living
- Consumer confidence
Consumer behavior is very difficult to predict and have a huge impact on the real estate market. Consumer confidence is the fuel that drives real estate demand. When the economy is strong and the real estate market is seeing year-upon-year growth, the public expects prices to constantly rise. If this confidence is too high it leads to speculation as people attempt to profit off short term increases in property value. In-effect value appreciates not because of economic fundamentals, but because people want them to. Prices reach an unsustainable level which leads to a sudden drop in prices – the market, in-a-way, corrects itself. The extent of this drop in value often-times depends on how irrational the market was before the peak – the more irrational, the bigger the drop.
Another important factor to consider is personal preferences/situations. See the real question shouldn’t be “Is it the right time to buy”, rather “Is it the right time to buy for me”.
Amit Bhandari
Sales Representative with Signature Service GMAC Real Estate
W: amitandroy.com
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Gratuz
I don’t know if it is the right time to buy, but I have a feeling that prices will jump a little in the coming months, if Bank of Canada maintains the low interest rate. Usually, a spike in consumer confidence is paralleled with an adjustment to the prime lending rate. Last month saw a record June, after a little slump at the end of last year and the beginning of this year. But the interest rates are kept artificially low, despite the fact that sales have picked up again. Now my fear is that if the interest rate are artificially maintained this low, then by the end of the year we will have a real real estate bubble – prices shooting up because of a surge to buy, while the rates are still low, without a surge in new properties.
Amit Bhandari
You have good points — the banks always intervene with interest rates when it comes to inflation or periods of time when people stop spending. This “invisible hand” is one of the major factors of the current resurgence. I was reading an article published by Scotiabank that claims immigrants are the biggest driving force to this little boom period. Not only that, I think first-time home-buyers are also a big factor. It will be interesting to see what actually happens come end of the year.
Andrew Costa
Very good points from both of you and I can definitely agree in a lot of ways, naturally with lower interest rates and higher consumer confidence prices will start to see small increases over the coming months but they will be small increments and nothing drastic or over night. Also you have to keep in mind that prices had softened an average 5% in most areas from summer 2008 till as late as March 2009 in a lot of different areas. So as prices increases they still won’t be much higher, if higher at all, then where they were at the start of the spring market in 2008. It will be interesting to see where things go and with the first time buyer benefits there it is still a great time for them to get active!