Best Time to Buy & Making a Smart Investment
Timing your Purchase to Seasonal Fluctuations:
Buyers and sellers alike often ask this question when they start to think about buying or selling real estate. Is there a "best time to buy a house?" While there’s no crystal ball, there are definitely “slower” times in the market cycle where there are smaller buyer pools or less demand for properties still for sale, which can translate to lower prices or more flexible conditions for a better buy.
In Canada, this is usually the last two weeks in December, the first two weeks in January, and August – all prime holiday times when people are often tied up with vacations and family. These particular times are perfect for buyers to take their time finding what suits them best (if it’s out there), and to negotiate a great deal from there. It doesn’t necessarily mean the property will sell for a ridiculously low price, but you never know.
Buyers’ and Sellers’ Market:
Another prime time to buy is when the supply exceeds the demand, or when we see a flood of properties on the market and people have more to choose from and tend to take their time without the pressure of 10 more buyers also wanting that very same house. This is true for prime areas in particular. This situation is commonly known as Buyers’ Market.
In real estate, the relationship between supply and demand is calculated as "available inventory." At the current sales pace, how long would it take to sell the total number of houses available on the market? That is how the real estate industry measures inventory. Inventory is measured in weeks and months. Longer inventory times are associated with buyers' market. Shorter inventory periods are associated with sellers' market. Some buyers and sellers hope to time their purchase to take advantage of market cycles.
Timing Your Purchase to the Market Cycle:
One problem with attempting to time your purchase to the business cycle is that even experts have problems accurately predicting the future economy. Even when they can, the real estate market does not necessarily move in tandem with the stock market or the economy as a whole.
Part of the reason is interest rates. When the economy is doing well, interest rates are generally higher. The result is that fewer people can afford houses. When the economy slows down, interest rates fall, the "affordability index" moves up and more people can afford houses. As you can see, this cycle does not move "in sync" with the rest of the economy. It is also influenced by how many people have jobs, whether they are well-paying jobs, and consumer outlook for the future. All these factors make it difficult to know, in advance, whether the housing market is going to boom or bust. What makes most sense is the "buy and hold" strategy. Buy a home you expect to remain in for at least seven years or more.
Why You Should Not Wait to Purchase a Home:
Even if you could "time the market," that strategy would most benefit first-time buyers. You see, people who already have a home usually need to sell it in order to come up with the down payment for their next home. Even if they don't, they would have to carry the debt and obligations on two homes at the same time. This can create financial hardship, even when you rent out the previous home. There are maintenance costs, renters don't always make their payments on time, the rent may not cover the mortgage and other costs, and sometimes the property may be vacant.
So if you are a move-up buyer and want to purchase your next home during a depressed market, you generally have to sell your current home during that same depressed market. If you want to sell during a boom, then you also have to purchase during the same boom. It tends to equal out.