What the future holds for Canadian real estate
By Don R. Campbell, Special to QMI Agency
Everyone wishes they had a crystal ball, with a clear picture of the future. But homeowners and investors looking at the housing market numbers for clarity are looking in the wrong place.
That’s because the numbers (average price, housing starts, sales-to-listing ratios, etc.) are only a reflection of what has occurred in the past.
Smart homeowners, first-time buyers and investors ignore those stats and focus on the underlying economic fundamentals, and by doing so can quite accurately predict what will happen in their target region’s real estate market.
The “Canadian real estate market” does not exist
Canada is actually a series of regional markets, all of which perform relatively exclusive of each other.
In 2011, the market really will be a Goldilocks story: some markets will be too hot (compared to underlying economics), others will be too cold, and some will perform just right. As our regions continue to detach from each other economically, this trend will continue for many years to come and will compel investors and homeowners to ignore national real estate numbers and trends.
Long-term increasing prices of real estate stem from economic (GDP) growth.
GDP growth = job growth = (12 months later) population growth = increased rental demand = decreased vacancies = increased rents = (18 months later) property purchase demand = increase in property prices
Sustainable real estate price increases occur approximately 18 months after a region’s economy begins to grow. This cycle works in reverse, too: prices drop approximately 18 months after the economy in a region begins to shrink.
(There can be upward and downward blips not attributed to economic growth, such as when governments enact new measures, but these are just short-term.)
Because Canada’s 2011 market is going to be even more regionally fractured than in 2010, it is imperative that investors and homeowners understand this formula and make their investment decisions based on it, rather than on fluctuating housing market numbers.
A regional view – Ontario
Government intervention in Ontario (including Toronto’s new Land Transfer Tax and the implementation of the HST) has had completely unpredictable and long-term effects on the province’s real estate market and its ability to provide affordable housing in a province that needs it the most.
Economically, the province will be divided into two regions – one with job growth and one with job stagnation. The regions with job growth will dramatically outperform the rest of the province.
Toronto: A tale of many regions – all in one city. Some neighbourhoods are poised to outperform (e.g. Scarborough and the Beach), while others will lag. Toronto investors won’t see values skyrocket, as was witnessed over the past few years. New condos will still come on the market and will be sold on a per-square-foot or replacement-cost basis rather than a comparison basis.
Best deals will be found in the secondary and resale markets, with an increasing number of motivated vendors hitting the market later in the year, keeping a cap on price increases. Remember that “average price” means nothing in a market as large and diverse as Toronto. The overall Toronto market will underperform.
The rest of the province will experience a return to sane markets – not too hot and not too cold.
Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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