Whenever we see the market heat up as much as it has over the past couple of years, we are continuously discussing the proverbial real estate bubble.
I think when you’re responding to this question it’s important to put things in the correct context. The question should really always start with, “what are your short and long term real estate objectives?”
What we have seen in our market over the past year or so is a combination of factors that continue to put significant upward pressure on prices in all areas and property types.
1 – We have historically low interest rates where buyers are paying more than 50 – 60% principal the day they move into their properties.
2 – We have a clear lack of supply. We are one of the fastest growing cities in North America and we continue to struggle to keep up with the demand from immigration. There are a number of factors contributing to this ranging from outdated government policies to lack of buildable land, and none of them are going to be solved anytime soon.
3 – The third factor is a generational transfer of wealth from parents to children. These early inheritances are unlike anything we have really experienced before at this scale, and they are having a significant impact on the market. How long this will last is unknown but it’s a reality of the current market landscape.
So what does that mean for the real estate market moving forward?
Well there are a couple of important areas that I am paying specific attention to.
The more of these units that sell, the more I believe the current market prices are protected. I compare this to the resistance levels you would find in the stock market. As stocks fall, they meet price points where significant shares were purchased and this blocks prices from sinking lower. I look at the new construction market as this same type of parachute in real estate.
Regardless of any short term changes in the market, there are a couple of principles that always remain the same for me as a real estate investor.
My advice for buyers is to remain patient and to ensure that you are working with a great real estate advisor who truly understands the current market relative to value.
One of the things we’ll probably look back on in terms of this market is that our historically low interest rates, combined with rising prices pulled future buyers into the market and put pressure on move up buyers to get into their forever homes sooner than they would have. This could in turn reduce some of the buyer demand in future years and could have a slight cooling effect on market growth. This scenario of course ignores the immigration effect but is important to consider nonetheless.
What is abundantly clear, is Toronto and the surrounding areas continue to be one of the most sought after places for people and business to call home. We have steadily grown our profile on the world stage and continue to do so. As long as that’s the case, our real estate will continue to be a highly sought after commodity and an excellent place to build long term wealth.
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