Predictions are like opinions, everyone has one
Predictions are difficult. It is difficult to make sense of the real estate market. It is hyper-local but at the same time part of a larger whole. What happens in Toronto, Washington and Tehran impacts the price and time to sell that little bungalow just off Margaret Avenue.
It is the butterfly effect.
It is the interconnectedness of all things.
It’s the six degrees of Kevin Bacon.
At the same time, we read a lot of news and sometimes see things on TV and the internet that seem contradictory to each other and to our current beliefs. To make matters even more complicated, real estate statistics are always looking back at what just happened as a indicator of what will likely happen next. We know this is often not the case.
And then there is the way that real estate is reported. I mean this in the kindest way possible —> reporters, journalists and news personalities are not economists. They don’t really get it. They are not attached to it like full-time professional realtors are. For example, most real estate agents like me track not only the traffic to their websites and their own activity (listings, showings, conversions…), but also they keep an eye daily on the local hotsheet — the up to the minute record of local listings and sales.
Simply put, reporters report it, but realtors live it.
Finally, people believe what they want to believe. If they really need prices to drop, they convince themselves that prices will fall because of X. They do this without taking all of the other factors into account. There are a lot of moving parts in real estate. It’s a big machine. A big part of the economy.
Trends for 2018
Borrowed money is tougher to get
For borrowers, because of a bunch of mortgage restrictions that went into effect a few days ago, affordability will be cut by as much as 20%. That means, instead of being able to buy that $500,000 home, buyers may only qualify for a $400,000 home. Borrowers need to qualify for more which essentially means that they are getting less.
For us locally, you would think that would lead to a general decline in the volume of sales and may lead to a drop in prices. But the tougher mortgage rules may lead more GTA buyers to the relative affordability of Waterloo Region. I was in Victoria over the Christmas holidays. The market there has gone a little nuts probably because of it’s relative affordability compared to Vancouver.
Interest rates will rise
The economy is strong and interest rates remain historically low. We had hikes in July and September last year. At the end of 2018, I predict that interest rates will be at least another half a point higher. Maybe more.
If that is true, we will hear rumblings in the late winter and early spring and that may lead to a very busy spring market.
Condo sales will continue to be most active
Circa 1877, the new condo development located at the old Brick brewery sold out in a day. I was there. There was a line up of realtors and home buyers. It could have been pandemonium when the listing brokerage’s computer system broke down but this is KW so everyone was polite and well behaved.
As an aside, most of the buyers (90+%) were reported to be local to KW.
The LRT, changing demographics and affordability are driving condo growth.
Historically, prices rise in KW by 5-6% per year. Remax recently went on record with a prediction of 6% for KW in 2018. Others I’ve read say 2-3%. My own experience with predicting price growth tends to be a couple of points too low. With that in mind, I think in 12 months we will see a 4-5% gain in home prices.
They will go up; it is only a matter of by how much.
Renovators not strangers
The out-of-town buyer and the out-of country buyer have been blamed for our rising prices. But statistics show that this phenomenon, through in existence is over-reported. Frankly the reality does not match the perception. It’s human nature – blame the outsider.
What is really happening and will continue to happen is more closely related to valuation.
- when new homes and condos are sold (pre-construction), it used to be that builders and developers gave you a discount for tying up your money for one, two or three years. Now, I think they price things at a future value – the price they think it will be worth when the work is completed. People pile on because money has been cheap and easy.
- Added value through improvements and renovations. We have seen teardown and rebuilds, and major renovations in certain Waterloo Region neighbourhoods. We don’t see all of the smaller kitchen and basement renovations, but there is a lot happening in the home improvement world. There is no way to measure this data. With the price of land becoming so expensive, we will see this home improvement trend continue. When an improved house sells, prices go up.