Article By: Neil O’Donnell
At the start of every year various experts and media personnel get together and try to tell us what is going to happen. First, we get to hear who they are and why they are qualified to tell us their predictions and why we should listen to them. Well, I’m not a statistician or a data analyst. I’m not a high level bureaucrat who writes reports for CMHC or a bank. What I am though is a person who can see the big picture by pulling all the pieces together and draw conclusions. That is what I am going to do for you today.
Supply and Demand. Let’s talk about Demand first.
The real estate market now from Burlington and Hamilton all the way down to Niagara Falls and Fort Erie is crazy hot right now. Prices for homes have risen 10-20% in the last 10 months. This is mostly driven by Covid-19 and its impact in the GTA.
Let me give you an example. We had a listing in Hamilton, a nice little brick bungalow. 3 bedroom detached garage but needed a little work. We got 18 offers and it sold almost $80k over asking. However, that is not the interesting part of this story. One of the buyers lived on the 26th floor of a 32 floor condo building in Etobicoke. With Covid-19, his building was only allowing 2 people in an elevator at a time. So he would end up walking down…26…flights…of…stairs then waiting for over an hour with his groceries to get an elevator to go back up. He was in his mid 30’s. Can you imagine what it’s like if you are in your mid 50’s? All of a sudden, he doesn’t mind the hour+ drive from Hamilton to the GTA for work.
We sold a property in Niagara-on-the-Lake to a beautiful couple who live in a condo building right in the heart of the city. Again, stay at home orders and forcing everyone to stay in and work from home, while homeschooling made things challenging. Right beside their condo building another is being built. So all day long they have to listen to the sounds of construction. The pounding, the squealing of machines, the yelling. Before Covid-19 they would be at work or school and not have to listen to any of that noise. Now they are bombarded every day.
This is just two examples, there are literally thousands more.
So with people’s ability to work from home and go to school from home tens of thousands of people in the GTA are looking for a way out. They want what we have…space. A bigger home with a yard and less noise. They want to be around less people so they reduce their chance of catching Covid-19. Whatever the reason it is putting more Buyers into our market.
We already had a steady stream of people from the GTA buying in our area for various reasons. Downsizing, retiring, more home for your dollar, the beautiful areas compared to the concrete jungle of the GTA, the character of our neighbourhoods vs the cookie cutter subdivisions of Mississauga, etc.
Now on top of all of those reasons people are afraid of Covid-19 and want to get out of the GTA hotspot.
If you own a property, you are in for treat as the buyers are hot right now. Now let’s talk about the other side: Supply
The supply of homes for sale in our marketplace is at an all time low. With the increase in GTA buyers over the years our inventory of homes for sale has been low for years but Covid-19 has dramatically decreased the supply.
For example, two years ago there were literally dozens of homes for sale in the small hamlet of Binbrook, last week there were zero. As I type this there is only 1 residential property for sale and it’s our townhouse listing.
On the East Mountain in Hamilton over the past five years there are always 50 to 100 townhomes for sale at almost any given week. Last week there was none.
In Grimsby last week there were only three properties for sale under $1 Million dollars (not including the condo apartments in the west end). Beamsville only had 4. Smithville had 1 and Vineland and Jordan combined had 3. We have never seen such a low inventory of properties for sale.
All of this together, the increase in the number of buyers from the GTA added to our local buyers PLUS the record low inventory of properties for sale is what is causing the prices to skyrocket. If you ever thought about selling you will not find a better time.
It’s at this point where people start to tell me “This is crazy the market will crash soon. It can’t keep going like this.” Well let’s look at this shall we.
The Market Crash!!!
Look, CMHC just released an article saying they predict anywhere from a 14%-50% correction in the real estate market.
Last year at the start of Covid-19 they also predicted a reduction. Oops, guess they got that wrong. Personally, I don’t believe the market will crash. I know, I’m a real estate agent, of course I would say the market won’t crash because I want people to keep buying property. I completely understand the cynicism, I get it. However, I would like to see the market correct a bit to make it easier for people to buy a property. I just don’t see that happening.
Here’s why: The Greenbelt Legislation.
Most people incorrectly believe the driving force for the Greenbelt was to protect our green spaces from development because it’s good for the environment. That is not true. The main reason for preventing the continued expansion of subdivision into our green spaces was because from a tax perspective it is unsustainable.
Look at Mississauga. For the last 40+ years you have seen subdivision after subdivision with 70-100+ ft wide lots with cookie cutter detached homes being built. The government realized that property taxes alone were not enough to support that level of infrastructure. One person paying taxes for that 100ft of road, sewers, garbage collection, snow plowing and transportation is not enough. The government needed a way to get change from 1 person paying for that 100ft of road to 10+ people paying for that 100ft of road. This is where the Greenbelt came into being.
By freezing the expansion of every town and city in the province the government has forced cities and towns to infill and then build up. In the last 10-15 years the amount of detached home subdivisions has dramatically decreased while condo building, and condo townhomes have sprung up everywhere. It’s not because that is what people want to live in, it’s because there is no more land available to build on so we get density. Yep, that is the word that is now heard everywhere. We need more density. Mixed use where we see retail or commercial space with residential on top. This is how the government gets to have 10+ people paying taxes for the same piece of road. The Greenbelt had nothing to do with the environment, it was all about getting density. Politically spinning the legislation so it looks like it’s all for the environment makes it a lot easier to pass than saying we need to pack people in on top of each other like cord wood.
The Greenbelt allows for towns to apply to expand their boundaries once every 10 years. This anniversary came up a few years ago when the Liberals were in power with Kathleen Wynn and they didn’t allow any expansions. In short, the Greenbelt effectively means we have no more land on which to build more detached homes = no new supply to meet the demand.
But look at all the people out of work. The small business going bankrupt. The economy is taking a beating. Soon people will need to sell their houses, and this will flood the market causing a crash.
Let’s talk about that. First, I have friends and family that are going through an incredibly hard time and there are probably some of you in the same boat. I know this is hard and if there is anything we can do to help please reach out to me.
There are two aspects to this that we need to cover. The Government and Banks and then how it impacts Supply and Demand.
No matter what the government says, they don’t really care about us and neither do the banks. They only care about their profits and cash flow and they will do whatever they can to protect it. Right now, real estate is about the only thing the government and the banks can count on and they will do whatever they can to protect it.
10+ years ago the energy sector out west was pumping cash into the government piggy banks. Well that is not happening anymore and with the cancelling of the Keystone pipelines is not going to get better anytime soon unfortunately.
We all know that massive companies like Walmart and Loblaws don’t pay a ton of taxes compared to small businesses or you and me. However, with Covid-19 causing a huge spike in personal and business bankruptcies the revenue for all levels of government is also taking a huge hit. Toronto is looking at a 30-50% revenue shortfall alone.
We all know that 95% of business in Canada are small businesses. We also know that it is the big banks that finance those small businesses. The Canadian Federation of Independent Businesses is predicting we could see 20%+ of those businesses go under. If that is true that means the banks are looking at 20%+ of their commercial revenue stream turn into bad debt. The Banks are also losing out on financing the oil patch out west as well.
So if Banks and Government are losing revenue from the energy sector and losing out on small business financing and taxes they only thing left is making money on our homes. Our property taxes and mortgage payments, on land transfer taxes and refinance fees, etc.
If the market does look like it will take a hit, the government and banks will step in. They did it at the start of Covid-19 back in March. They allowed people to freeze their mortgage payments while dropping the interest rates. There is still more they can do to make keeping your home possible. They could allow you to increase your amortization from 25 to 35 years. Let’s remember it wasn’t so long ago that the longest you could finance your car was 60 months. They’re now up to 96-month terms. All to keep the monthly payment affordable. The government and the banks can do the same with our mortgages.
With the energy sector and small business taking a hit can the banks and government afford to let that happen to the housing sector? I don’t think so.
Now let’s look at supply and demand again in this context. During the great depression unemployment reached a huge 30%. That is massive. Almost 1 in 3 people were not working. So how does that compare to now and could we see that happen again.
Now the Frasier Institute pegs the number of working Canadians employed by the government in some form at 26%+ or 1 in 4 people work for the government. During Covid-19 we know that government employees are not being laid off and are still getting paid.
We also know that major corporations and banks are also not affected by Covid-19 and layoffs. If you’re in the financial or tech industry you are still okay and doing well. To enable the working from home boom we have seen the tech industry having to work overtime to make it happen and keep it running. Marketing and advertising is also working overtime as people need to communicate how things are different, how their item or service is made for you to work or stay at home etc. Delivery companies and Supply Chains are also booming with the stay-at-home orders and social distance fears.
Unfortunately, this means that it will mostly be the independent small businesses (restaurants and those small stores in your neighbourhoods and downtowns) and their employees that will take the hit. While those are a lot of people affected it’s just not enough to make a real impact in the real estate market.
The Market may slow down, flatline for a while or may even soften but it won’t crash. There are still just too many people who are going to still be employed and able to buy compared to the supply of homes that are available. The bidding wars may come to an end, but we just don’t have enough properties on the market compared to the number of buyers wanting to buy.
So, what does this all mean for the real estate market in 2021?
We believe that between now and the fall we will see a continued strong demand for homes and a low supply which will keep the prices high and bidding wars will continue. Selling now will allow you to get the highest possible price.
We think that by the fall of 2021 anyone who wants to get out of the GTA- and can do so – will have done so and we should see the Covid-19 exodus spike begin to go down. This could have the effect of flattening the high prices we see now. Again, why is now the best time to sell if you are thinking about it?
Government will continue to keep the interest rates low for the next few years to allow the economy to get back on its feet. If the market looks like it’s in trouble, we expect that the government will tweak mortgage rules to ensure people don’t lose their homes.
With the Greenbelt legislation preventing the expansion of towns and cities the building of a large number of detached homes will not happen = no real new supply therefore the prices for these homes will not crash. So buying a home is still a really safe investment.
If you would like to discuss this in more detail we would be happy to and if you are wondering what your home is worth please let us know. As you can see, we know a thing or two about the market and what effects it
Any thoughts or questions? Share them with me at [email protected]