It seems to be the overwhelming trend - first in the United States, the the Western parts of Canada, then Toronto and now even London - it's official - buyer's market is the new reality. I am writing this entry mainly because it's information I seem to be covering almost on a daily basis with my clients. If clients are asking, there is a good chance that the general public would appreciate the information as well.
Here is the bottom line: What does a buyer's market have to do with me and my financial health?
Fortunately, it's an easy answer. The logic I am about to outline is intended to put you in the correct state of mind to really evaluate if this is a "BAD" market. That is the wrong terminology - for some people a seller's market is a bad market - let me illustrate.
Thinking in CURRENCY terms
The most basic thought pattern I would like you to have is thinking of your investment in real estate as a different currency all together. Consider market shifts a differentiation between our Canadian Currency and Real Estate currency. Consider it like you consider trading Canadian money for American money. Here are some different scenarios:
1) A homeowner wishes to downsize. It is this client that could possibly feel the negative effect of a buyers market - WHY? The currency is depreciated against the Canadian Dollar (prices are lower)... therefore when they convert (sell) there home into Canadian currency, they are exchanging at a lower rate. What is the level of negative impact?
Here is the part of the thought pattern you need to be careful of... if a person is selling completely and then moving to a rental, yes they will feel the full impact. But remember, in this scenerio the client is downsizing. What is a typical downsize? Perhaps they are going from a property worth $300,000 to a property worth $250,000. This client will only feel the negative impact on the $50,000 difference. The other $250,000 is remaining within the same currency (which will eventually fluctuate back up). So if the market prices were down a drastic 10% compared to recent past, the actual loss is 10% of $50,000.
What this works out to is $5,000. Now in the big picture, would I advise a buyer to wait in their home until a market recovers for a $5,000 benefit? Probably not. Here is why: lifestyle. If you're downsizing, most likely you've already been putting it off for years. Secondly, nothing is 100% in real estate - I can't call a properties value within that small range - it's within the margin of error. Just make sure you buy properly and I would bet your cost to move is well worth the benefit of living where you belong.
2) A homeowner wishes to Upgrade. This is the client who will benefit from a buyer's market. You can reverse the above scenerio and the $5,000 gain goes in the favour of this client. You will be investing more into the real estate currency and buying it at a discount. Don't get wrapped up on selling price, the discount is in effect for the home you really care about - the one worth more money!
The ultimate winner is the first time buyer. They are able to act quickly on closing dates, wait until the right deal comes along and are moving into the market when prices are affordable.
I hope you find these thought patterns helpful in sizing up the buyer's market and how it effects you in real world terms.