Greetings from fabulous Mississauga!
I received a couple of insightful questions from an avid reader and thought I would share the questions and my thoughts on them
The questions were:
Mark,
I really enjoy receiving your emails with the latest POS properties and all the real estate information that you include.
I have a couple of questions:
1. The average house price fluctuation we see on a yearly basis, is that price when the property is sold or is it the closing date? This would shift the cycle by a couple months depending.
2. I can’t help wonder the influence of interest rates on price. I have a suspicion that “affordability” (sales price + interest rate) has a lot to do with the market direction? Have you ever graphed the house prices vs. interest rate?
Keep the great information flowing!!
Thanks again
BB
My answer was:
Hello BB
Thank you for your email.
Regarding your first point, the sold price is as of the date the property was sold, not the closing date.
Your second point about the relationship between interest rates and prices is interesting. I suspect here is a relationship, but not sure how closely one follows the other. When rates increase it seems there is often a slight pause or lull in sales and then it continues again. On the other hand, sometimes when rates go up there is a sudden surge in sales as the people who are pre-approved and locked into the lower rate end up purchasing. When rates are trending downwards and there is a drop in the mortgage rate or an expected drop in rates, purchasers often go into a holding pattern waiting for rates to bottom out. It really depends upon the “mood” of the market and which direction rates are going. I’ll see what I can find with the numbers and let you know if I find a good relationship and high confidence value.
You also mention affordability and market direction. Yes, I believe there is a relationship between these two factors too. Again, there seems to be a tipping point where when rates and prices get too high, affordability becomes an issue and the market slows down. The converse is also true. I’ve found that the trend and the mood of the real estate marketplace and the press has more impact on the market direction than the actual numbers. There are many instances of fear influencing the market far more than a change in interest rate or price. When the government introduced the foreign buyers tax which ultimately affects less than 4% of all sales, our market collapsed. Conversely, the fear of missing out on the rapid and sustained rise in prices caused many people to get into the market sooner than they otherwise would have (or should have) during many periods over the past 30 years.
Depending on where we are on the “Market Cycle” greatly affects the marketplace. To read more, see this page: http://www.mississauga4sale.com/Market-Emotions-Cycle.htm I see that I need to update that page!
There are many more aspects to the real estate market that one can analyze.
All very interesting factors to consider! J
Thank you,
Mark