The Perfect Storm

It is a well established fact that values in Real Estate do rise and fall in a somewhat cycular fashion.  The difficulty arises in the anticipation of these cycles, as in other modes of investment. The consumer is hesitant to acknowledge that he/she buys a home for solely investment purposes. Rather he/she would suggest that a home is for the family and all the core values associated with that goal.  The subject of " loss on investment" generally arises when the market value erosion is significant.

In the Kitchener-Waterloo area we have been blessed with an economic bubble which has shielded us from the market experiences in other areas. A 12 month analysis would indicate that there has been some adjustment in values, but in an amount not exceeding 4-5%.  In the past two months, there has been a stabilzation of value--especially in the $200,000-$300,000.00 range. With the combination of the lowest financing rates EVER and a healthy supply of listing inventory-- contrary to popular belief -- we are in the middle of a perfect storm in terms of buying or selling a home.  Add to that that the recent Federal Budget initiatives for first time home buyers.

When prices begin to rise again ( and they will) , inflation again becomes a factor. With inflation, comes government intervention and the cost of money will again rise.  The result to the buying consumer who wants to "wait" will be higher financing costs and a higher acquisition price for their home.  A home that sold for $265,000.00 12 months ago will realistically command a price of $255,000.00 today.  A mortgage that has a rate of 4.5% could reasonably rise to 5- 5/12% as the market heats up again. Taking these two factots into account...if one were to wait until the market is again in an upward cycle... that same home could cost an additional $10,000.00 plus the cost of financing---which could be $8,000.00-$10,000 more over a five year period based on a $200,000.00 mortgage..  The basic math says waiting could equate to an additional $18,000-$20,000.00 in real costs.

One cannot anticipate cycles but my opinion is that we are heading for an upward trend.  There is no magic switch that gets turned just happens as you patiently watch the process.  The choice is to accept the doom and gloom of the media around you or simply accept the fact that things are good in Kitchener-waterloo and will only get better.

Submitted February 17, 2009


Robert Mair

Robert Mair

Managing Broker
CENTURY 21 Heritage House Ltd., Brokerage*
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