Finding the right property takes skill, luck, and a whole lot of intuition. But the hard work of scouting properties will give you the gut feelings you need to make the hard decisions successful real estate investors make.

Assessing Current Market Cycles

The wild ride real estate markets have taken in the past five years highlights the need to be savvy to the direction a cycle is moving. You don’t want to be jumping in on the downside thinking it’s a temporary correction, only to be dragged down. And you don’t want to miss the low point of a particular market. These basic elements help you to decide when to buy and sell properties, but putting the concepts to work requires research, keen observation, and a measure of intuition.

This article walks you through an analysis of market cycles as they apply to the process of purchasing a property. Three main steps go into assessing the current market cycle: conducting research, analyzing the facts you’ve found, and making a decision.

Research: Doing your homework

The first step is to figure out what type of market you’re in. Is it a buyer’s market, with plenty of product to choose from? Or a seller’s market, with rising prices and limited supply? Or are conditions stable, reflecting a relatively balanced market?

Knowing where to find basic information – and when to dig for more – is an important skill for researching market cycles. In this section, we give you the pointers you need to be an effective market analyst!

Tracking interest rates

Higher interest rates are probably not something you appreciate, but the cautious lenders financing your investment certainly will! The lower the interest rate charged on a mortgage, the greater the incentive for you to borrow to buy a property. During the early 2000s and then again following the financial turmoil of 2008 such low rates were the norm, but in 2010 interest rates began marching higher. Higher interest rates mean borrowed money will cost you more, cutting into the return you can expect on your investment.

The primary source of information on interest rates is the Bank of Canada, the Ottawa-based central bank that lending institutions across Canada pay attention to when setting their own interest rates.

The bank’s Web site provides information on its own rate, including reasons why it is where it is, and offers charts with historical interest-rate data that allows you to see where rates have been and draw conclusions about where they may be heading – and, more important, a rate that seems appropriate to your sense of the market.

Canada’s major chartered banks and other lending institutions often issue newsletters discussing their own monetary policies and their outlook for interest rates. The updates and newsletters from their chief economists are important resources to consult when trying to figure out where rates are heading and how real estate markets will respond.

Though we don’t recommend trying to second-guess interest rates, a close look at past rates, current trends, and the projections of the various banks should indicate whether rates are set to rise, plateau, or fall. By gauging trends in interest rates against various other factors such as the health of the economy, you can make your own call as to whether financing will be more or less expensive in future and whether you should select a variable or fixed rate mortgage. Interest-rate trends also indicate whether you should buy now, wait a few months when financing might be cheaper, or sell while low rates are creating opportunities for buyers to hop into the market.

Rising rates may make financing more expensive but they can sometimes create opportunities for buyers by putting pressure on owners who have overleveraged their portfolio. Selling when buyers are active can provide financing you can use to purchase properties when debt-burdened owners have to unload assets.

Source by Kristie Haller

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