When a market is volatile, how can you predict your next move?


Barry Fenton is Founding Partner, President and CEO of Lanterra Developments and one of North America’s most respected real estate experts.

The success of any business depends very much on your ability to estimate the state of your market in the present and accurately predict the future, especially during volatile conditions. To effectively understand what people spend their money on and why, a detailed analysis of the current situation – geographically and economically – is needed. When done properly, entrepreneurs can gain a significant advantage over their competitors.

With over 40 years of experience in the real estate sector, I have gained extensive knowledge of what drives the housing market. Many of these key indicators can be applied in different industries. Here are some important tips for predicting the highs and lows of a market.

Keep in mind the prospects for supply and demand.

While supply and demand may fall under Economics 101, business leaders need to dig deeper and “before” to try and predict how or when the scale might tip in the coming years. There are many important considerations. To name a few: the expected immigration/emigration for your geographic market to get an idea of ​​who is coming and going, as well as demographic shifts.

Investigation work must also be carried out in the competitive landscape. How many competitors are driving demand, and is that exceeding or exceeding demand?

As a real estate developer, I recognize that a market will be constantly hot when the demand for housing rises faster than developers can build houses.

Examine the impact of inflation.

Inflation is a common theme in all industries these days and it is important to understand how it affects your market. This includes the cost to produce and how it trickles down to the end user.

In the current real estate construction situation, supply chain constraints and the conflict between Russia and Ukraine have caused the cost of goods to rise exponentially, while labor costs in construction have also risen. Ultimately, this forced developers to sell at a higher cost. While real estate demand here in Toronto remains high and maintains a stable market, other markets may not be as fortunate as consumer priorities shift.

Observe evolving consumer behavior.

In general, business leaders need to step back and see how consumer behavior evolves. For example, in the past two years, the pandemic has changed many people’s living and purchasing habits, such as the shift to working from home.

Entrepreneurs need to have their finger on the pulse of these changing habits to understand how they will affect demand. These insights should lead to proactive decisions rather than reactive decisions.

It is also imperative to understand how consumers will react to certain economic or political changes. For example, I’ve noticed a trend where buyers panic when they see mortgage rates rise, which heats up the market and drives costs up even more. However, when those rates rise, the market begins to cool as purchasing slows. And another example: when there is uncertainty or conflict in different parts of the world, people tend to invest in certain countries that feel safe. This is often the case in Canada.

Compare international markets.

Looking at the trajectory of your geographic market over the past 5-10 years, are there parallels to other local markets around the world in the same industry at a different time? How can you use that history to predict the future of your market?

For example, I like to compare Toronto to New York City, from a real estate perspective. Toronto has a very large population, just like New York City. It is the economic center of Canada as New York City is to the US. You can feel the same energy between these two cities – both are vibrant and extremely sophisticated. Meanwhile, New York City is still much closer. When comparing skylines, Toronto looks horizontal while New York City is more vertical. This gives us a sense of how much potential Toronto still has to grow.

Predicting highs and lows in your business market comes down to where to find reliable investments and where to find the demand. It’s about understanding what people want today and what they want five years from now. Use these principles to maximize your wealth.

The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice on your specific situation.

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