If you're looking to buy a house, you may have heard the terms "buyer's market" and "seller's market." These terms generally refer to real estate, although not exclusively. They refer to an imbalance between the number of homes that people are seeking to buy and the number of properties that are currently for sale.

Although there are no official definitions of what constitutes a "buyer's market," it's generally understood to be when the number of properties sold dips below 12% of the total number of properties for sale. 

Depending on where you live in Canada, you may be in either a buyer's market or a seller's market. In Alberta, for instance, the Canadian Real Estate Association (CREA) has forecast that home sales will rise by 3.5% in 2017, in contrast to other areas of the country like British Columbia and Ontario where CREA is forecasting a seller's market.

For those who are ready to move from renting to owning in the Alberta region, a buyer's market is good news indeed.

More and Better Options

It's self-evident that when there are significantly more properties for sale than buyers willing (or able) to purchase them, that buyers have more and better options. In areas of Canada like Edmonton, a number of factors are combined together to create an over-supply of quality homes, giving prospective buyers many more options and at better prices.

It's important to note, however, that a buyer's market does not automatically guarantee the best price for every home that is listed for sale. Many owners start with asking prices that are only lowered after several months pass without successfully selling the property. 

Cheaper Mortgages

Clearly, the most important factor for many home buyers is the total purchase price of the home which directly affects the price of the underlying mortgage. A home that could sell for $500,000 in a seller's market might be reduced to $430,000 in a buyer's market, saving the buyer not just the $70,000 difference in the purchase price but also tens of thousands of dollars over the course of the mortgage.

Canada's new law on mortgages requires that all prospective homeowners make a down payment of at least 5% of the total purchase price, as well as obtain mandatory mortgage insurance for any down payments equaling less than 20% of the purchase price. A buyer's market that pushes down home prices allows buyers to afford better homes with the same down payments, while also obtaining cheaper mortgages (and potentially not even having to buy mortgage insurance). 

While you can obtain a mortgage at lower interest rates, the new mortgage rules also require lenders to conduct a "stress test" on borrowers. This test will determine if you'd still be able to afford to pay back your loan at a higher interest rate than you actually got (using a five-year fixed rate of 4.64 percent as the benchmark). This can provide you with peace of mind knowing you'll be able to afford your mortgage payments despite economic changes. 

Riding the Wave

When a buyer's market becomes too lopsided, it isn't just individuals and families who start buying properties. Real estate speculators and investment firms will start buying properties on the assumption that buyer's markets will eventually turn into seller's market, therefore increasing the value of the property for later on when it's sold. You might consider taking advantage of this as well and buy an income property. 

You don't have to be a real estate investor to benefit from purchasing a home during a buyer's market cycle. Even if you have no plans to sell your home in the future when the market swings back to a seller's market and prices go up, your equity in the home will be more valuable. Since a home is often many people's most significant asset, it is a good thing when it rises in value as it can be borrowed against for loans and lines of credit.

An Insulation Against Future Shocks

Many Canadian homeowners suffered following the worldwide economic crisis a decade ago. One of the reasons why many parts of Canada today are in a buyer's market is the new laws on mortgages are deliberately designed to minimize the risk of large numbers of defaults, the same event that led to the economic crisis.

For home buyers in a buyer's market that is buoyed by this protection against catastrophic collapse of home prices, this is a very good thing indeed. Home buyers can be assured that their neighbours are not likely to default on their mortgage payments, dragging down property values in the area. In other words, the backing of the Canadian government (via mortgage insurance and tighter rules on borrowing) effectively serves as an insurance policy against drastic devaluations of home prices in the future.

You don't need to be a real estate expert to grasp the idea that more homes for sale and fewer buyers will lead to more options and lower prices. But there are also a number of other benefits to buying your home in a buyer's market as well, such as the ability to afford "more house" for the same amount of money, cheaper mortgages, and the ability to avoid or acquire less mortgage insurance. 

You'll also have the satisfaction of knowing the driving force behind the creation of the buyer's market (stricter laws on borrowing) will serve as a cushion against any potential rapid devaluations of your home's value in the future. Over the course of a 25-year mortgage, these combined factors could save you tens of thousands of dollars.

Photo credits: hands, model houses, agent