Much like in nature, there are seasons to Real Estate. While there are four distinct seasons in our Canadian climate, the real estate market has but three, each with its own unique characteristics that contribute to the cyclic nature of buying and selling real estate.
The autumn market, which runs three and a half months from September to mid-December, is driven by our fundamental need for shelter. At this time of year, real estate acquisition is often fuelled by pragmatism, prudence, and protection from the elements. Rooted deep in the human condition for survival, buying real estate in autumn is most often about retreat.
Autumn begins by firmly grounding us with its 'Back to School' regimen. The changing leaves, brisk winds and darkening skies signal the arrival of harvest, and the transition to familiar routines - among them getting back to the “business” side of living.
Often starting with a New Year's Resolution to move, spring takes root in our enthusiastic desire to embrace change and stimulates the housing market. In spring we believe anything is possible which, in my opinion, is why spring is hook, line, and sinker the best time of year to sell.
The spring market, in particular the months of March and April, is an ideal time for home owners to list their properties for sale. It is in these critical months where the momentum of demand will cycle to its highest while the supply of good housing stock will be at its lowest.
There are a couple of reasons for this. Among them there is the fact that all the buyers active since the autumn who, for whatever reasons, did not secure a purchase. Now they become fully keen house hunters at the beginning of the New Year. Already suffering from buyers’ fatigue from several months of searching, these buyers are highly motivated. The problem for them is not their lack of motivation, but the limited supply of property.
While this group of ‘Autumn Buyers’ is aggressively searching, there is always a wave of new buyers in January, who have resolved to move in the New Year. This group uses the months of January and February to qualify their purchasing power and dip their toes into the housing search. During this time the autumn buyers begin snatching up the new spring listings by out-bidding the newer, less educated buyers.
But as March unfolds, both groups of buyers have now been sufficiently exposed to the dynamics of the market, and to property value, and are now aware of how the purchase process works. Armed with this knowledge, buyers compete, head to head in hopes of securing their spot in a still limited supply of housing. It is during these months when supply is at its lowest relative to the double cohort of qualified buyers.
The short supply of listings through the spring market is both a function of weather and the psyche of sellers. Although the spring market begins in January, winter’s harsh and bitter presence will often linger through March and April, making it too cold for most sellers to prepare their property for sale.
I mean, who wants to clear out their garage, shed or basement when there’s still ice and snow on the ground? Furthermore, unless a prospective seller is extremely organized or highly motivated, it can often take two to four months to prepare a property to be ready for sale, especially if they’ve been occupying it for several years. If they are only just deciding to list in January, it can take time to come to market.
For property owners spring is a great time to sell; the season creates an environment and competition. But don’t underestimate the power of autumn when the cycle typically repeats itself.
Summer, with its high humidity, roasting temperatures and long hours of daylight; this sense of seasonal freedom translates into cottage escapes & playtime, reunions & weddings, and beers & barbecues.
And, when it is summer leisure versus business, leisure usually wins - with good reason: we spend all winter dreaming of those lazy days of summer. With this pleasant distraction present for buyers, the business of purchasing property diminishes dramatically. In fact, the demand during summer for real estate can be so limited, many realtors will dissuade their clients from listing or recommend they postpone coming to market until autumn. As a result, the only properties which do come to market tend to be either relocations or changes in household status (the arrival of a newborn, co-habitation or divorce).
However, there can be an opportunity here; if the supply is low, it means there is limited choice for any active buyers looking.
By Labour Day the carefree days of summer fold and dwindle and the market moves back to Autumn.
"It left the impression that prices in the Canadian housing market had dropped compared to the previous year."
"Averages are a horrible place to go," says Tsur Somerville, who heads up the Centre for Urban Economics and Real Estate at the University of British Columbia.
Gregory Klump, the chief economist at CREA, agrees. Using average prices is "like looking in a funhouse mirror," he warns.
More than 15 years ago, the MLS developed its own home price index to get a clearer picture of price trends. It uses a complex statistical model to measure the rate at which housing prices change over time by tracking price changes in "typical" homes in each market. Each neighbourhood has a typical benchmark home.
CREA, in addition to providing average home price data, also releases MLS home price index data for five major markets: Greater Vancouver, the Fraser Valley, Calgary, the Greater Toronto Area and Montreal. Sixteen additional markets are slated to be added in the future.
"If you really want an accurate measure of what's going on with home prices, you've got to keep the quality of the homes constant," says CREA's Klump. "That's what the [MLS home price index] does. It compares apples with apples over time. It's not subject to a change in the sales mix the way average and median prices are."
What difference do the different approaches make? In Vancouver, for instance, the average selling price in June was $701,141, down 13.3% from last year. But using the MLS home price index methodology, Greater Vancouver prices actually rose year-over-year by 1.7%.
But something has changed. In a year when the seasons of Real Estate have been turned on their head, so too has the psche of the real estate buyer. Buyer's don't seem to be falling for the manipulation as readily anymore.
It could be fun watching this next phase play out.
Maybe August won't be so boring after all.
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