What type of real estate market is this?

When you hear the term “buyer’s market” you intuitively know what it means: prices are dropping which is great for potential home buyers. But did you know that a “buyer’s market” and it’s opposite a “seller’s market” are terms defined by a statistical measure?

To measure market activity, real estate boards use a ratio known as the sales-to-listings ratio. As you can imagine, the ratio compares the number of sales to the number of listings in any given market. As such, this statistic is able to measure the balance between supply and demand.

Real estate cycle: Buyer’s market

In most Canadian markets, a buyer’s market occurs when the sales-to-listing ration is 35% or less (or approximately 7 sales to every 20 listings). This is a market when there are more homes for sale than there are buyers; it’s a market where prices will drop over time as home owners become more and more eager to sell their property.

Arguably, Calgary is now a buyer’s market.

Real estate cycle: Seller’s market

A seller’s market, on the other hand, occurs when the sales-to-listings ratio reaches 55% or more (or approximately three sales to every five listings). Seller’s market occur when there are a lot of qualified buyers in the market place, like when interest rates are low, and not enough homes for sale in the market. When these conditions occur, bidding wars will drive up prices as multiple offers come in on sought-after properties.

Toronto and Hamilton, Ont. have experienced seller’s markets for the last few years.

Ask Home Owner columnist Romana King your real estate question »

How to calculate the sales-to-listing ratio

If you want to calculate the sales-to-listings ratio for your city or neighbourhood you’ll need only two pieces of information: the current sales for a given period and the current new listings for a given period. (If this information is not easily accessible on the real estate board’s website than call and ask. They’ll either provide you the data or send you to a real estate agent who can provide you the data.)