[Blog] A Guide to the Real Estate Cycles for Buyers and Sellers

The real estate market moves in a cycle. When the market is up or down, it often follows a cyclical pattern, which is helpful for buyers and sellers to understand. Here are all the details about the four stages of the real estate market cycle and how buyers and sellers can strategize and use the cycles to their advantage.

The Real Estate Market Cycle

There are two general patterns in the Ontario real estate market - economic, and annual cycles. Annual cycles refer to patterns shifting during different seasons, while economic cycles are market changes over several years. Understanding these cycles will give you a leg up when buying and/or selling.

The Annual Cycle

The annual cycle in the Ontario real estate market carries out over the 12 months that make up the year. It has four stages, broken up into three-month periods.

The first stage, between January and March, is when first-time and established buyers alike tend to enter the real estate market. Sellers who are looking to sell in the spring start preparing their homes to list, while realtors try to squeeze some early sales out to start the year strong. Normally though, inventory is lower in this period. This is important for homebuyers to note, as a lower supply and higher buying interest means prices are likely to rise. For sellers, it’s best to avoid things like renovating; if you wait too long to list you’ll miss your chance to sell in the spring.

Stage two is from April to June, sale numbers tend to shoot way up, and homes often sell quickly because of warmer weather, more activity, and the motivation to sell before the summer. For sellers, this may be the golden opportunity. For buyers, you may face competition from other motivated buyers.

During stage three, sales begin to slow during the summer. The spring frenzy usually sizzles out and prices begin to stagnate. It does, however, shift the negotiating power as many sellers will want to make the push to sell their home before fall. This is good news for buyers if there are more homes on the market and sellers are more receptive to negotiating. Sellers may receive fewer offers and experience more negotiating.

Winter marks stage four. The market may cool as the weather does, and prices tend to trend downwards as demand slows. Some sellers may choose to list their home towards the end of stage four to generate interest as we re-enter stage one. But homebuyers shouldn’t overlook this stage as it often favours buyers because there is less competition. The winter may be a little quiet for sellers but if you’re willing to be flexible and work with motivated buyers, you might lock in a great sale.

The Economic Cycle of Ontario Real Estate

The economic cycle follows market patterns occurring over multiple years. These usually paint a bigger picture of what’s happening in the market and provide better insights as to what the future might hold. It involves four stages: recovery, expansion, hyper-supply and recession.

Recovery is the phase after a recession ends. Demand slowly increases along with prices, but home construction tends to be quite low. This phase can sometimes look like the recession phase but over time, conditions will begin improving and the real estate market will trend upwards. The beginning of this phase marks a shift towards a buyer’s market, as inventory begins to slowly increase and more homes appear on the market at lower prices. As more homes are constructed, though, the power begins to move towards sellers.

Expansion occurs as the economy improves, unemployment drops and construction rates increase. Buyers purchase homes at a higher rate, shifting to a seller’s market, while prices rise with the increased supply of homes. This does mean more options for buyers despite an increase in competition.

Hyper-supply is a phase where there is an abundance of properties to choose from, yet buyer demands decline. Construction rates surpass sales, while prices start to fall. This creates a ripple effect as jobs begin to diminish and houses sell for less, so power switches back to the hands of buyers who may find more homes to choose from at lower prices.

Recession is where home supply overshadows buyer demand. Prices decline, making this a challenging time for sellers while buyers tend to lack confidence. It does provide an opportunity for investors because this phase often leads to stable rent rates. The recession may open the door to lower prices for buyers, but buying can be tricky as recessions tend to affect employment rates.

Information is key when deciding to buy, sell, or both. These cycles can be used as a tool to guide your decisions when buying or selling a home. Zoocasa has qualified real estate agents across Canada that can help you navigate your unique market as it fluctuates through the cycles.