The real estate market moves in a cycle, so when the market is up or down, none of it is random but more or less the expression of a typical pattern seen over time. Understanding the stages of the real estate market cycle can help buyers and sellers make better decisions. We’ve examined the four stages of the real estate market cycle and how buyers and sellers should act based on the market’s stage.
The Real Estate Cycle
The real estate market isn’t as volatile and unpredictable as you might think. Most of the patterns you see and hear about in the news involve cyclical trends that recur every few years.
There are two overarching patterns in the Ontario real estate market: economic and annual phases.
As their names suggest, annual real estate cycles refer to patterns that shift during different seasons. In contrast, economic cycles refer to changes in market conditions over several years.
With a better understanding of real estate market cycles, you’ll find yourself better positioned to buy a home that makes sense for your finances in the short and long term.
The Annual Real Estate Market
The annual cycle in the Ontario real estate market carries out over the 12 months that make up the year. It has four stages, each corresponding with three months (or seasons).
Stage 1 – January to March
The first three months bring a heightened sense of interest in buying homes. That is true for first-time homebuyers and existing ones already. Sellers eager to make sales in spring start gearing up to list their properties. Realtors also push to squeeze some early sales and start the year strong. However, during this time, inventory is generally lower.
Prospective homebuyers should remember that the limited number of homes and high buying interest cause prices to rise. If you’re a seller, you may have an easier time selling but avoid getting tied up with renovations since you might miss your chance to sell in spring.
Stage 2 – April to June
Between April and June, or spring, house sales reach a furious pace. Homes sell the fastest due to better weather, more activity, and a desire to buy a home before the hustle and bustle of summer.
Buying in the spring can yield greater supply/inventory and deals. But you may face competition from others bidding for the homes you want and narrow timelines to close deals.
If you’re selling, the spring market may be your golden opportunity.
Stage 3 – July to September
During the summer months, sales begin to slow down since the frenzy of spring selling just months earlier comes to an end. Prices tend to stagnate (although they don’t completely drop).
However, the transition into the summer season creates a shift in negotiating power. Since fewer homes are selling, sellers will push to make a sale before the fall.
That is good news for homebuyers. There’s higher availability of homes on the market, and sellers may be more receptive to buyers’ demands and offers (since they want to sell ASAP). However, be aware that pressuring sellers into giving a discount can still result in them declining your offer, and perhaps you missing your window to buy.
For sellers, keep in mind that you might not receive as many offers this time of year, and buyers may negotiate more if they have more options.
Stage 4 – October to December
The winter months are cold in Ontario both temperature-wise and sometimes in terms of the market. Price growth drops and sellers may lose confidence in selling their homes. At best, they may hold open houses to field price concessions or generate interest throughout the winter and into the spring.
For homebuyers, this may be an advantageous time of year because homes may be listed at lower prices. The winter months are generally quiet for sellers, so over-asking deals are harder to procure. However, selling in the winter can be advantageous to sellers, too: if you’re willing to sell for slightly less, you’re more likely to find committed buyers if the price is right.
The Economic Cycle of Ontario Real Estate
The economic cycle involves market patterns that often occur over many years. These patterns tend to paint a bigger picture of what’s going on in the real estate market and provide better insights into what the future holds. The economic cycle involves four stages: recovery, expansion, hyper-supply, and recession.
Recovery (Balanced Market)
As its name implies, the recovery phase occurs after a recession ends (more on this below). Demand is slowly increasing, but home construction is very low. Prices slowly rise, too, and vacancy rates remain relatively high.
The recovery phase can look like the recession phase, but closer observation will show that it’s a time of improving market conditions.
For a homebuyer, the beginning of the recovery phase marks a shift toward a buyer’s market. As inventory slowly increases, more homes may appear on the market at lower prices, giving buyers more options and negotiating power. However, sellers slowly regain power as more houses get constructed, and prices increase.
Expansion (Seller’s Market)
The expansion phase occurs as the economy improves, unemployment drops, and construction rates increase. At this point, buyers purchase homes at a greater pace. Vacancy rates fall, and there is more interest in investment properties.
The expansion phase officially becomes a seller’s market. There is an increased supply of homes and prices continue to rise.
For homebuyers, the expansion market means more options, although there’s likely to be more buyer competition. Sellers fare well during this phase since they can sell for more and have more confident buyers pitching offers.
Hyper-Supply (Buyer’s Market)
The hyper-supply phase is contradictory because it’s a time of abundance and decline. There is an abundance of properties to choose from, yet buyer demand declines. Construction rates surpass actual sales. Also, prices begin to fall. This creates an economic ripple effect since construction jobs vanish and houses generally don’t sell for as much. Once again, the power shifts into the hands of buyers.
Homebuyers may find more homes to choose from and lower prices. On the other hand, sellers may have to negotiate more with buyers to close sales.
Recession (Balanced Market)
A recession is an ominous-sounding word, but it’s part of the economic cycle. There’s a plentiful supply of homes during the recession phase that overshadows the buyer demand. Prices also decline during this phase. This is a challenging time for sellers, and buyers often lack confidence during a recession. However, a recession is a lucrative opportunity for investors due to stable rent rates.
For homebuyers, a recession may open the door to lower prices. Buying during this time is tricky because recessions often affect employment rates (among other factors). Sellers have it the hardest during a recession due to declining prices and values.
Understanding the Ontario Real Estate Market
The information listed above isn’t just a refresher course on economics. It can serve as a tool to guide your decisions when buying or selling a home. Speak with one of our qualified real estate agents so they can help you navigate the current state of the market.
