When it comes to the low number of homes for sale this spring, it is not just Kitchener Waterloo that is experiencing a real lack of inventory, there is a shortage of homes for sale in the GTA, the Golden Horseshoe, and other cities and countries around the world.
But it is KW that I am interested in.
The inventory problem
The lack of inventory and the corresponding price escalation started about the beginning of 2016. At first we thought it was a blimp. Then we thought it would quickly correct itself. Then we hoped and prayed that the end was near.
Now we think that there is a 40% chance of things levelling out and 30% chance of things continuing as they are, which means according to one of my clients that there is a 30% of prices falling.
As a realtor friend of mine says about those thirty-percenters, “there are those that live in hope and those that live in a home. The hopers are homeless and hopeless to help”
I’m not much of a poet.
Now I’m not sure how much is wishful thinking on my part and how much is exhaustion, but maybe just maybe prices are plateauing. Maybe change is in the air. I have spoken to a number of agents who tell me that some buyers have pretty much given up. They stay home on offer night, not wanting to get involved again in a bidding war where houses go $150,000 over asking price. Maybe, just maybe, the problem of undersupply will be solved by lower demand.
And since Easter, there has been a real uptick in the number of new listings entering the market. The busiest time for new listings is always between Easter and May 2-4, so we are in it now.
26 Factors impacting our inventory
The factors of our real estate market imbalance can be broken down into real and psychological factors, and demand and supply factors. There are historical factors, demographic factors and economic factors. You cannot point your finger at one thing and say, this is why the market is imbalanced. It is a combination of things, some related to each other, some related to entirely different things. But all of these things have some impact.
Here are some of the reasons I’ve heard or read about for our inventory shortage. (I’m sure there are more.) In alphabetical order:
It is a new phenomenon. It was suppose to be part of the sharing economy and sometimes it is renting out an extra room. But sometimes running an Airbnb is a cottage industry and this new industry is taking away some of the inventory of homes for sale. Why sell when you can rent it out? Why not buy something simple and become a host?
Booming tech industry
It started with the University of Waterloo, Blackberry, Open Text, Desire to Learn…Then came Google, Thelmic Labs, Kik Messaging, Shopify and too many more to mention. We are a tech boomtown.
Construction labour shortage
New home builders are taking more than a year to deliver a house. It only takes three months to build a house. Part of the delay is not enough skilled labour.
Construction equipment shortage
Equipment needed to build roads and put in sewer systems is expensive to buy, run and maintain. Our local governments and large construction companies cannot invest in too much more equipment, especially since we are running out of land to build on.
Baby boomers (or Zoomers) deciding to age in place and not moving into condos or to Vancouver Island, Costa Rica, beside a golf course or senior’s communities.
They are hard to count, but there are quite a few places sitting empty. Cities like Vancouver and Toronto are trying to find a way to tax them.
Fear of missing out
Since early last year, I’ve had a great number of clients say to me that they have to buy before the prices get beyond their budget. Home buyers are feeling the urgency.
We finally became a satellite of Toronto. Lots of people buy homes here and are willing to commute to Toronto for work.
The sprawl of Toronto hits a wall at the greenbelt, a wall of fields and farms and well, greenery. The green belt actually brings Waterloo Region closer to the GTA
It is well known and over-reported that GTA area homebuyers have suddenly realized that Waterloo Region offers a heck of a lot more in terms of lifestyle and house for your money than they can get in Milton or Mississauga.
This is sometimes called the move-over effect.
Some are student houses with empty basements, some are investments waiting for the right time to sell or to renovate, some are empty half of the year.
Our local governments decide less than a decade ago that our future was up, not out. With the focus on intensification, new suburbs were slow to get going.
Three short years ago, the local condo market seemed expensive and over built in relation to all other kinds of local real estate. Now that all other kinds of real estate has seen rapid price appreciation, and maybe with the LRT in our not so distant future, intensification may finally start to be realized.
The GTA became too expensive for investors so they began to look further afield.
KW population growth
We are growing faster than national average. Growth puts pressure on real estate
Lagging new construction of single family homes
Supply fell behind demand and then never caught up again. Some builders are starting lotteries for buyers when new lots are released.
Low interest rates
Historically low interest rates have made the cost of borrowing money cheap.
Low Canadian dollar
Foreign investment and investors get a good deal when our dollar is so cheap. Everyone loves a good deal. Our banks and our economy are always seen as prudent and safe investments.
This article speculated that owners along the LRT line are waiting until it is in operation before selling.
Move up market
Those buyers moving from their starter homes to their ‘forever homes’ are stalled and not moving because they cannot find a place to move to.
When buyers perceive that housing is scarce, they push their budgets above what is was before.
Canada’s immigration numbers have not been this high since the early 1900s when we were trying to settle the prairies. Of course many new Canadians will not settle in the prairies now. Toronto, Vancouver and other major centres see the bulk of the new Canadians.
Sellers are waiting till the market tops out
Although you cannot time the market, many try. When you read the news about prices going up every month, you know that time is on your side when selling.
For a lot of reasons, demand surged and supply lagged. This imbalance lead to a seller’s market.
A few years ago Waterloo Region became the tenth larges CMA in Ontario. Being in the top ten, puts us on a lot of lists for companies thinking of setting up shop.
I have helped a few Canadian families move back to Canada in the past six months. They all claimed that they didn’t want to live in Trump’s America
Although it was wet in April, January and February were relatively mild. There was no real winter slow down this year.
Working from home
If you can work from home, you can live anywhere. More and more companies like their employees to work from home at least some of the time. If you have to visit your office in Toronto or Vaughan or Mississauga once a week, living in Waterloo offers a much better lifestyle.