The GTA’s real estate market is dynamic, with demand and prices oscillating between two extremes. At one end, our population growth often outpaces our ability to construct new houses, often leading us into a Seller’s Market–a market where demand exceeds supply, pushing up prices. However, like all markets, the real estate market is cyclical.

Shifting economic conditions often lead buyers to adopt a wait-and-see attitude. This sudden drop in demand can lead to a Buyer’s Market– a market where an excess of inventory gives buyers ample inventory and negotiating power. 

Learning how to gauge the market is very important if you’re looking to buy a home (or sell a home).

The Cyclical Nature Of Real Estate

Like the broader economy, real estate operates in cycles. There are booms and busts, repeating in cycles. The reasons for these cycles are complex, but include:

• Interest Rates: Higher interest rates increase borrowing costs, immediately reducing buyer pre-approvals. Conversely, lower interest rates push up prices and increase buyer pre-approvals.
• Employment: Strong employment boosts consumer confidence, encouraging long-term investments in the community.
• Immigration: Population growth surges can drive up demand and prices, while emigration can reduce demand.
• Legislation: Government policies, such as mortgage regulations, first-time buyer incentives, and foreign buyer bans, significantly impact the market.
• Investor Activity: Real estate investments amplify market cycles. Investors, more sensitive to market fluctuations than homeowners, often accelerate downturns by rapidly selling properties.

These cycles can vary in length and intensity. We saw very short busts in the real estate market in 2008, 2018, and 2020. However, after prices bottomed out in 2023, they remained below their peak for years.

How Do You Measure A Buyer's Market Vs Seller's Market?

We like to look at a measurement called Months Of Inventory (MOI). It is calculated by dividing the number of homes listed for sale by the number of homes sold that month.

In Oakville real estate, we like to call a balanced market somewhere between 3:1 (listings to sales ratio) to 4:1 (listings to sales).

• Below 3:1 indicates a slight sellers market, where prices start climbing. Seller’s markets can get very severe, with active listings actually dropping below the number of sales per month.
• Above 4:1 shows a buyer’s market, where competition for buyers leads to sellers lowering their prices.

 

Above is an example of an extreme buyer’s market. As you can see:

• 304 active listings compared to 21 sales for Oakville push us into a buyer’s market with 14 months of inventory.
• We can also review Sales To New Listings to show the type of market we’re in; that looks like 21/161 = 13%. In a balanced market this measure is between 40-60%.

 

Navigating Seller's Markets

In a seller’s market, buyers need to act decisively and quickly on properties they like. Competition from other buyers in Seller’s Markets can lead to very quick sales; it can also lead to bidding wars. The deeper into a seller’s market we push into, the quicker buyers need to become.

In seller’s markets, buyers experience something called diminishing buying power. Every month that passes, where home prices increase, the buyer’s budget actually buys less house.

Navigating Buyer's Markets

Buying in a buyer’s market is the perfect time to get into the market. During this time, excess supply is putting strain on seller’s price expectations. That means buyers have more options and more negotiating power.

In this market, it can seem like every month you wait, you gain more buying power. However, markets recover quick, and timing the bottom of the market is about as possible as timing the top of the market.

Understanding market dynamics is crucial for successful real estate transactions. Whether you’re thinking of buying, or selling, be aware of the current market.

Have questions about the market? Let us know!