Position in real estate cycle
The position in the cycle of the particular real estate market will have a bearing on prices. It will be a “seller’s” market, a “buyer’s” market or a “balanced” market.

In a seller’s market, the number of buyers who want homes exceeds the supply, or number of homes on the market. Prices increase, homes sell quickly, and a large number of buyers are looking to purchase from a minimal inventory of homes. These characteristics have important implications for the buyer, who has to make decisions quickly, must pay more, and frequently has conditional offers rejected.

In a buyer’s market, the supply of homes on the market exceeds the demand, or number of buyers. Home prices are reduced, homes are on the market longer, and fewer buyers will be available compared to the higher inventory of homes. The implications for buyers in this type of market are: more favorable negotiating leverage, more time to search for a home and better prices.

In a balanced market, the number of homes on the market is equal to the demand, or number of buyers. The prices are generally stable, houses sell within a reasonable period and sellers accept reasonable offers. The implications for the buyer in this type of market are that the atmosphere is more relaxed and there are a reasonable number of homes from which to choose.

Interest rates
There is generally a direct connection between interest rates and prices. The higher the rates the lower the prices, and vice versa. The lower the rates, the more people who can afford to buy their first home or an investment property. This puts greater demand on the market.

Taxes
An area with high municipal property taxes can be a disincentive to a purchaser. This could cause the real estate prices to drop. Provincial taxes, such as a property purchase tax, will restrict some buyers. Any future federal tax legislation on real estate for example, such as an increase in capital gains tax, could have a negative influence on investors. Conversely, a reduction in capitals gains tax will stimulate investment real estate.

Economy
Confidence in the economy is important to stimulate home buyer and investor activity. If the economy is “buoyant” and the mood is positive, more market activity will occur, generally resulting in price increases. Conversely, if the economy is stagnant, the opposite occurs, resulting in a decrease in activity and lower prices. If real estate purchasers are concerned about the economic situation, a predictable loss of confidence occurs in the market.

Population shifts
A location with attractive business, employment, tourism, and retirement opportunities will attract immigrants from outside the country as well as emigrants from other provinces. The increased demand will increase prices. Conversely, if there is net migration out of the area due to closure or potential closure of industry, environmental problems, or other factors, it will have the opposite effect on real estate prices, and they will go down.

Vacancy levels
If there are high vacancy levels, this could reduce investor confidence due to the potential risk, and real estate sales could go down. On the other hand, if there are low vacancy levels, this could stimulate investor activity as well as first-time buyers. Renters who can’t find a place to rent may borrow from relatives or find other creative ways to enable them to purchase a home.

Location and image
Highly desirable locations will generally go up in price more quickly and consistently. The public perception of a certain type of residential builder or property will affect demand, and therefore price. Some areas or types of properties are “hot” and some are not at any given time.

Availability of land
Where there is a natural shortage of land, municipal zoning restrictions, limits on development or provincial land-use laws that restrict the utilization of existing land for housing purposes, this will generally cause prices to increase. Again, it relates back to the principle of supply and demand.

Political factors
The policy of a provincial or municipal government in terms of supporting real estate development will naturally have a positive or negative effect on supply and demand, and therefore on prices.

Seasonal factors
Certain times of year are traditionally slow months for residential real estate sales, hence prices decline. There are ideal seasons for purchase and sale.

Baby Boomers
The boomer generation has a dramatic impact on the real estate market. With the passing of trillions of dollars of inheritance currently occurring, and over the next 10-15 years to boomers, there will be considerable disposable income to buy investment real estate. In addition, many boomers are downsizing and buying condos, to enable them to maintain an active lifestyle, provide a sense of security and feeling of community, and enable freedom from house maintenance.
Other external factors that can affect the real estate cycle, and therefore prices, include the general business economic cycle, local business cycle, and community cycle.