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 relies heavily on whether you can gauge the condition of your market in the present and accurately forecast its future, especially during volatile conditions. Effectively understanding where people will spend their money and why requires a detailed analysis of the current situation—geographically and economically. If this is done correctly, entrepreneurs can achieve a significant advantage over their competitors.

With over 40 years of experience in the real estate industry, I’ve gained extensive knowledge of what drives the housing market. Many of these key indicators can be applied across industries. Here are some key tips for predicting any market’s highs and lows.

Consider outlook for supply and demand.

While supply and demand may fall under Economics 101, business leaders need to dig deeper and “sooner” to try and predict how or when the scale might tip in the years that follow. There are many important considerations. To name a couple: the projected immigration/emigration for your geographical market to get a sense of who is coming and going as well as demographic shifts.

Investigative work must also be done in the competitive landscape. How many competitors are fueling demand, and does that outpace or underserve demand?

As a real estate developer, I recognize a market is going to continually be hot when demand for housing is rising faster than developers are/can build homes.

Examine the impact of inflation.

Inflation is a prevalent theme across industries today, and it’s 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 Russia-Ukraine conflict have caused the cost of goods to rise exponentially while construction labor costs have also escalated. In the end, this has forced developers to sell at higher costs. While demand remains high for real estate here in Toronto and maintains a steady market, other markets might not be as fortunate as consumer priorities shift.

Observe evolving consumer behaviors.

Overall, business leaders need to step back and look at how consumer behaviors are evolving. Over the last two years, for example, the pandemic has changed many people’s living and purchasing habits, such as the shift to work 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 inform proactive decisions rather than reactive ones.

Understanding how consumers will react to certain economic or political changes is also imperative. For example, I’ve noticed a trend where purchasers “panic buy” when they see mortgage rates increase, heating up the market and fueling costs to rise even further. However, when those rates do increase, the market starts to cool as purchasing slows down. And yet 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.

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

For example, I like to compare Toronto to New York City, from a real estate perspective. Toronto has a very large population, and so does New York City. It’s the economic hub of Canada as New York City is for the U.S. You can feel the same energy between these two cities—both are lively and extremely sophisticated. Meanwhile, New York City is still much denser. When you compare skylines, Toronto looks horizontal, while New York City is more vertical. This gives us a window into how much potential Toronto still has to grow.

Forecasting highs and lows in your business’ market comes down to where reliable investment can be found and where the demand is. It’s about understanding what people want today and what they may want five years from now. Use these principles to help maximize your wealth.

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

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