Factors that Drive the Real Estate Market

Many people are realizing the possibility of making money by investing in Canadian real estate. Investing in real estate is one of the modern ways of making money, but you need to know what you are doing to avoid losing money. Some people make this their occupation and others dabble in it from time to time.

To succeed as a real estate investor you must understand the factors that drive the real estate market in your area. Here are a few points to consider:
 
 
1- Mortgage interest rates
Low interest rates allow a greater proportion of renters to become homeowners, which in turn can lead to an increase in home sales and therefore push prices higher.

2- Increase in disposable incomes
This is one of the most important indicators. If a town’s average disposable income is increasing faster than the national average real estate prices are poised to do the same thing. Key indicators include increased average income, decreasing income tax rates, and increasing retail sales. Be wary of towns where demand is driving values upward while the average income remains flat. Check out the housing affordability index for the area. As a rule of thumb, a well-balanced market for investors is a market that has a housing affordability index of about 33%.

3. Increased job growth and incoming migration
It pays to read the newspaper regularly in the towns you invest in. Be on the lookout for announcements of new jobs, major expansions, or new employers moving in. Find areas where the population is growing faster than the provincial average and gaining a good reputation. Also, look at immigration – people from other countries moving into the area, and intra-migration – people moving from other parts of Canada into the area.

4. The real estate Doppler effect
It is often much more profitable to invest in areas surrounding the boom area than to buy property in the heart of it. Use this factor to identify areas that are poised for a strong increase in demand. Smaller cities, outside of areas that get the effect, usually take 6 months to catch up. Look for towns where redevelopment is occurring. Older untouched neighbourhoods in these areas can sometimes be hidden gems that aren’t immediately affected by a boom.

5. Regional political climate
Business-friendly politicians generally promote a real estate-friendly investment environment. Look for regions where development is encouraged, not shunned. Look for areas with forward-looking economic development offices where they sell the area to potential employers. Progressive towns attract business while other towns lose it.

6. The economy
Another key factor that affects the value of real estate is the overall health of the economy. This is generally measured by economic indicators such as the GDP, employment data, manufacturing activity, the price of goods, etc. Broadly speaking, when the economy is sluggish, so is real estate.  A positive economic condition can make the confidence of the buyers and investors high. An inactive economy will result in the devaluation of the market prices of properties.

7. Critical infrastructure expansion
Here’s another reason why reading local newspapers in areas that you plan to invest in will pay off when considering buying property in certain areas.  Look for planes, trains, highways, sewers, land annexation or expansion plans.  But remember, never buy based on rumours alone.  Trains and rapid transport are huge (i.e., towers that spring up at subway stops).  A good investment would be to buy within 800 metres of the station, or exit/entrance, etc.

8. Change of zoning regulation
Sophisticated investors look first at a property’s physical attributes, and then they examine how they may be able to change the property to optimize profit way beyond just renovations.  For example, an old hotel that is converted into loft apartments, taking a single-family home and converting it to a duplex.  You need to know zoning bylaws and tenant regulations to make the transition successful. A small percentage of properties will have this potential, but make sure you have the required finances and expertise before taking this on or finding a purchasing partner.

9. Seasonal factors
Real estate prices are either high or low in some particular months of the year. Different seasons mean changing real estate sales. Therefore, prices of particular types of recreational properties or residential homes change depending on the season.