There has been a lot of talk about real estate prices in the news. Spring 2017 brought us insane prices and heavy competition driving the prices up even higher. With the frenzy to buy, there was a lot of talk of a real estate bubble. This is when the prices are driven up artificially and the market cannot support the average price point. This often leads to a correction in the market where prices will reset to a level the market can sustain. The people who are hurt in this case are those who are investors hoping to make a quick buck flipping the house or people who were counting on the high real estate prices to fund their retirement.
In April 2017 the Ontario Government brought us the "Fair Housing Plan". This included a number of measures intended to cool off the overheated market and bring back stability to the real estate world. The measures themselves had limited impact but the psychological impact to buyers reading about the plan in the media brought a sharp pause to the frenzy. People tried to get out of deals they had signed but not yet closed and new home owners wondered if they had made a mistake but the correction seemed to be just that; a correction. It was not a crash and prices levelled out at pre-spring levels and the year over year numbers still increased. There was an influx of listings as the people who were waiting for the top of the curve rushed to get on board and suddenly buyers had choice. The mindset changed from "we have to get one at all cost" to "there are lots of options, we can take our time and get one that is good for us". Sales volumes declined over the summer of 2017 but the prices remained relatively high as the sellers were unwilling to let their homes go for much less than they had been expecting. The winter brought the worst for sellers and long listing times were not uncommon as the buyers patiently waited for the bottom of the curve.
That brings us to Spring 2018. Buyers collectively seemed to decide that the bottom had come and many available listings were snatched up. Buyers who were still sitting on their hands found that they no longer had the plethora of options they did in January and February. Prices began to rise early in the season and continue to rise, but this time buyers and sellers are more educated. Both seem to be acting in a more responsible way, pricing the homes at reasonable values and offering reasonable values. This paves the way for the question, is the bubble bursting?
I will answer that question by saying that values follow a simple supply and demand pattern. As long as the values in Toronto remain high and largely out of reach for the average middle class family, places like Hamilton will continue to see demand outstripping supply. When demand is greater than supply, the stage is set for increasing prices. I believe that this year will be characterized by steady and healthy growth in value. Demand follows seasonal trends and prices are likely to peak mid to end of April and fade off after that with an overall yearly increase in average home price in the 4-6% range. Home prices almost always trend upwards and in terms of a long term investment, home ownership is almost always an excellent way to build up equity. When selling in an overheated market, you also need to buy in an overheated market and when selling in a soft market, you will also benefit from buying a new home in a soft market. The equation is more complicated for an investment property, but even there I believe 2018 will be a good year for gains in property values.
That's all for today, if you have any questions or would like to speak to me regarding your housing situation you can reach me by email at jonathansommer@royallepage.ca and I would be happy to discuss this further with you!
