Predictions for the 2020 Kitchener Waterloo Real Estate Market

predictions for 2020

Forecasting a continuing Seller’s Market! 

Kitchener-Waterloo is still one of the hottest housing markets in Ontario. Strong local job creation and business investment in the Waterloo Region’s tech, education, and healthcare industries have drawn increasingly large numbers of buyers to our cities, who are also attracted by our relatively affordable housing stock.

However, as levels of migration into KW continue, the supply of available homes for sale is becoming increasingly scarce. That has pushed the region into a strong seller’s market, as buyers face increased competition and upward pressure on home prices. These trends will continue until at least the middle of 2020.

In Kitchener-Waterloo, in the six months till November, home sales were 4% higher than 2018, while new listings plunged by 27.9% in November, with overall months of inventory sitting at a historic low of 1.1. As a result, average prices saw considerable gains across across the region.

More is coming in 2020. Housing sales and prices will rise from still low, and possibly lower, mortgage rates, job and income growth, pent-up demand, and supply constraints. The existing First Time Home Buyer plan and the enhanced version promised during the federal election will contribute to gains in sales and prices.

Seller’s Market in 2020

Rental Prices stabilized but rising 

Between 2012 to 2017, Waterloo Regions rental rates rose by about 25%. Then Waterloo Regions’ steep rise in house prices (2016- 2018) led to corresponding rises in rental rates over the past two years. (Rental rate increases tend to lag a year or two behind housing prices.) Now that the rental rates have mostly caught up with prices, as average home prices in Kitchener-Waterloo continue to rise at a slower pace, rental rates will follow.    

Couple the population growth with Waterloo Region’s relative housing affordability and changing demographics and you get a lot of pressure on prices in the rental market. We are not building a lot of new apartment units so rental rates will continue rising fast (but not quite as fast as the past two years).

Move up market

First-time homebuyers and foreign buyers drove demand in 2019, with the most in-demand neighbourhoods including Doon, Laurentian Hills and Huron Park. Continuing population growth and strong employment numbers are expected to boost the Kitchener-Waterloo housing market in 2020. 

In 2020, we will also see more activity in the move up market as first time homebuyers attempt to trade up into their second homes.

Move over/move here market. (The relocation market)

In the wake of the Fair Housing Plan, the GTA market lost a lot of steam. Prices fell. That impacted us here in Waterloo Region. However GTA area home owners are now on track to surpass their April 2017 price level. This will happen in May 2020. That means, Kitchener-Waterloo-Cambridge will again continue to see buyers out of the Greater Golden Horseshoe, moving here, driving until they can qualify for a mortgage. Affordability is the mantra of the ‘move over’ or ‘move here’ market.  

It’s all relative.

Under $600,000 Market

In 2019, in the non-condo under $600,000 market, bidding wars and multiple offers were common. That will continue in 2020, with certain neighbourhoods having bidding wars and multiple offers in the under $750K range.

Mortgage Interest Rates

Central banks around the world cut rates in 2019, but the Bank of Canada didn’t. It looks pretty certain that because of trade and business investment uncertainties currently existing around the globe Canadian rates will not rise in 2020. There is talk among Realtors that mortgage interest rates will actually be cut, but personally I think that is just wishful thinking. The national housing market is already starting to show signs of overheating in many markets. 

Condo Market

Local high rise condominiums in the cities’ core are affordable and an excellent way for young urban professionals to get into the market. With the LRT in operation and the Go Train to Toronto, our local condo market is doing well.  With so much demand, the entry-level market is impacted

Semi-detached homes and freehold townhouses

Affordability is driving high demand for semi-detached homes and freehold townhouses. Priced at about 70 per cent of an average single detached home, they are the next step up from condos.

Fewer sales due to inventory shortage

It is fairly common knowledge that people tend to move every seven years. However, like most things in real estate, common knowledge is often wrong (or out of date). I read recently that people are now tending to move every 10 years. I also read in another article, every 13 years. Either way, people are tending to stay longer wherever it is that they call home. Even baby boomers who were suppose to downsize, move to gated golf communities or take to the open road to enjoy #vanlife, are ageing in place. 

As a result, potential home sellers are still sitting on the sidelines in many markets. Some for the above reasons, others are waiting for prices to rise in their local markets to where they were in 2017 or beyond and that is making home buying in most Canadian markets challenging. Kitchener-Waterloo is no different.

In the last half of 2019, we saw national sales numbers accelerate, but the number of new listings stall. In November, The balance between supply and demand hit its lowest since mid-2007. The result is increased competition among buyers leading to higher and higher prices. It appears that this trend will continue well into 2020. 

The number of homes available for sale is at a 15-year low. 

Prices will rise 6% to 7%

The real estate sales statistics for Kitchener-Waterloo are not out yet for 2019, but it is widely believed that we saw a 7% to 8% increase in average sale price this year. Nationally, given the limited supply, the average sales price is expected to rise by 6.2% next year. In Kitchener-Waterloo, always ahead of average, we will likely be closer to 7%. And note that in regions with supply shortages, price gains may exceed forecast levels if the shortages become more acute than anticipated.

Jobs and university town

People discovered that you don’t have to live in the country’s largest and most expensive cities to find a great job. Cities like Kitchener-Waterloo are attracting a ton of professional talent with jobs in various sectors whether it be technology, healthcare, or education. 

One of my 365 Rules About Real Estate is always buy in a university town. That is always good advice.

Population

Over the 12-month period ending in August this year, Canada’s population increased by over 531,000, the largest increase in our history. And with Canada’s liberal immigration policy, we expect more population records to be broken going forward. New Canadians tend to rent for two years and then jump head first into the housing market. 

Kitchener-Waterloo has a higher than average per capita new Canadian population. This is adding pressure not only to our rental market but also to our buying market. 

Empty homes 

We have a lot of inventory in waiting. By some estimates, as much as 10% of the housing stock in Kitchener-Waterloo is vacant (that seems high). But we do know that there are 1250 airbnbs now operating in the region, up from just 600 in early 2017. Canadian data on empty homes is hard to interpret. Empty homes often get lumped together with homes occupied temporarily by people that have their primary residence elsewhere like students.

It was recently reported that Waterloo has almost half of all off-campus, purpose-built student housing in Canada. That aside, we do have empty houses

Investors

Real estate has proven to be a great long term wealth generating vehicle. Investors are still buying and holding or improving and flipping our local real estate. 

Conclusion

With a lack of listings it is going to be a tough year for Realtors and our buying clients. Sellers are seeing the trend and like in 2016-17 are going to wait and see how high prices go before listing, moving on, moving up or moving out. 

Further reading:

My predictions from 2019, 2018, 2017

Keep up to date with the Kitchener-Waterloo Real Estate News

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