Globally, property aka real estate markets are cyclical and this is known as the property cycle. Cyclical means the events that affect property purchasing power and sales prices are recurrent.
As the market transcends from one stage to another, there’s lots of media attention, and rightly so, as each stage has a big impact on the property sector and the economy.
While events in the global economy are felt everywhere, not all the developed world experience the same stage in the property cycle, concurrently, so knowing what’s going on in another region can empower you in the choices you make with property.
You’ll be told there are winners and losers in each stage in the property cycle, and when you’re selling a home or keen to purchase a property, it’s hard not to let market conditions affect your decision making.
What To Do In A Buyer’s or Seller’s Market
When you hear: It’s a buyers market, or it’s a sellers market and depending on which side of the fence you are your expectations are reset to expect more or less. However we say, pay attention to what you’re been told by the media, your real estate agents and mortgage lenders, but don’t let the news ultimately dictate your position.
Control the outcome, so you’re not a victim of circumstance. You’re probably thinking: yeah right, that’s easier said than done and for the less informed among you, you’d be right. However, nothing is black and white, it’s shades of grey and every stage in the property cycle has it’s opportunities you just need to know how to find them.
First Home Buyers
As a first time buyer, there can be gains made by holding off until the property cycle is in a slump, i.e. the purchase price may be less than buying the same property in the boom stage of the cycle.
However, in a slump, the cost of living is usually more as there’s less business confidence and growth and mortgage costs are higher as a result.
Therefore the aim of first home buyers is to get onto the property ladder when the timing is for you.
It’s always a good time to buy property, when the numbers work in your favour, i.e. contribute a healthy deposit, so you’re borrowing less, and within the DTI (debt to income ratio); so fluctuations in the market caused by the stages of the property cycle don’t impede your ability to make the loan repayments including the ‘principal’ so your mortgage is decreasing in value.
Sellers & Buyers Caught By Swift Change In Market
Sellers and buyers can get caught out by a swift change in market conditions, and the move from one stage to another.
When buyers have been searching for a property to buy, for some time, they can caught out. Property prices rises doesn’t necessarily trigger the need for buyers’ to readjust their position i.e. reassess they can afford, and what a lender will allow them to borrow.
Similarly sellers too can get caught out with inflated expectations of sales price. Sellers can dig their heels in and refuse to budge on price so a slowdown can occur as the gap between buyer and seller expectations widens.
When A Seller’s Market Is A Buyer’s Market
What is often not realised is a sellers market is a buyers market for home owners selling up to buy another home to live in.
Home sellers wishing to trade up, i.e. get a larger property or move to a more sought after location are also buyers therefore when they selling for less, they’re also buying for less.
A scenario: if a seller agrees to a 5 percent decrease in sales price of a £300,000 or $300,000 home, and the same 5 percent is achieved when they buy a home, that was for sale at £400,000 or $400,000, the home owner, is essentially better off by 5,000. This is when a sellers’ market is also a buyer’s market and vice versa. 🙂