Spring Market Holds the Real Estate Crystal Ball

Real Estate Crystal Ball

Jim Flaherty may have just got what he wanted....to cool off the housing market. Most economists and real estate professionals believe the landing will be soft, but stats show that all of the moves made by the federal government have been successful in slowing the white hot housing market. Despite the fact home sales were down 17.4 per cent in December over the same month last year, the average sale price rose 1.6 per cent across Canada.

This creates a very interesting dynamic in the Canadian housing market. Sales in the market place are down, but prices continue to rise. It defies the logic of most economic thinking. The reason for this is two-fold: The market is sustaining itself due to the motivated buyers that continue to purchase and take advantage of the low interest rate options available to home buyers today. Also, sellers don’t seem desperate enough to dramatically reduce their prices. Sellers are telling the market that they know what their house is worth and will gladly hold out until they get it....and if they don’t get it, they won’t sell it!

I have titled this article ‘Spring Market Holds the Real Estate Crystal Ball’ because the hottest market of the year will determine which way things will swing. Will a flood of buyers jump into the market and continue to pay what sellers are asking OR will buyers hold off and wait for prices to fall?


Buyers are also faced with the dilemma of purchasing now with interest rates being low versus waiting for the potential drop in market value when the rates begin to rise. Some first time buyers and buyers looking to move up the property ladder have been pushed out of the market due to the mortgage changes. Moving mortgage amortization from 30 years to 25 years has made monthly payments unaffordable for some causing buyers to hold off.

It should be noted and understood that the reported statistics showing significant drops in sales are coming from the country’s two hottest markets (Toronto and Vancouver). These markets needed to cool as the drastic price escalation was unsustainable. Toronto at 7 times the national average and Vancouver at 10 times the national average could not continue the way it was heading and the correction we are experiencing is mostly felt in those two markets. Regina, for example, actually posted an increase in sales of 15.9% from December 2011. For this reason, I recommend that you look locally for market information and not to be swayed by national averages.

There are a lot of questions and the spring market will help provide us with some of those answers.

MY THOUGHTS

  • The market will continue to be healthy and you will see a rise in home sales in the spring.
  • A correction or ‘Softening’ of the market should not be viewed as a negative. A stable market is a sustainable and predictable market.   People should want this when it comes to the largest financial investment in their portfolio.
  • Buyers will continue to purchase homes and take advantage of the record low interest rates.
  • The drop in reported sales is due to buyers unwilling to make the move upward on the property ladder and assume more debt that they were willing to assume before the mortgage rule changes and threat of interest rate increases.
  • The drop in sales is also a result of first time buyers not being able to afford houses RIGHT NOW due to the mortgage changes, but they will be buying once they are able to qualify.
  • Toronto and Vancouver will be OK.....just ask them!
  • We have the strongest banking system in the world and a government that is looking out for the people.
  • The Canadian real estate market will continue to be a good investment, don’t be scared off by inflammatory articles aimed more at selling newspapers and magazines than providing sound advice to their readers, and if you have questions, seek out professional advice so you are able to make the most informed decision possible.

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Sean Kavanagh

Sean Kavanagh

Sales Representative
CENTURY 21 Miller Real Estate Ltd., Brokerage*
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