Not a day goes by that someone doesn’t ask what the real estate market is like here in the Collingwood-Blue Mountain area. They also want to know what might be ahead and to them I say, I wish I had a crystal ball tucked in my briefcase but alas, all I have is data. So with that, I read, crunch and ponder the questions to arrive at completely subjective and rather useless predictions each year. Luckily, they have been surprisingly accurate if you look back at last year and beyond although the percentage increase in property values was beyond all expectations. Nonetheless, they are not worth two cents in any reality so exercise caution!
Here is What We Do Know:
Real estate prices have been enjoying a pretty steady rise in values since the early 1990’s outside of a small blip in 2008/09. They have reached a frenzied pace in the last two years. Here are some possible reasons and comments on other factors.
Economy: The Ontario economy is healthy and growing, benefits from a low dollar and steady immigration in-flow. Ontario’s unemployment rate is the lowest it has been in 16 years and there is momentum in the economy with no immediate threats on the horizon.
Ontario Election: Ontario is set to have a Provincial election in 2018. This always results in some increased cash flow into the economy and generally has a short term at least, positive effect.
Interest Rates: Despite two increases in 2017, interest rates still remain historically low. We may see one or two further increases in 2018 but I think anything larger may be held off until 2019.
Demographics: Millennials are moving into their prime home buying years. This group is one of the largest generations in history and their influence will reshape the economy. Studies show that 48% of Canadians state they intend to buy a home in the next 5 years.
Immigration: To grapple with the reality of an aging population and to help support economic growth, the government is increasing the number of immigrants allowed into Canada in 2018 to 310,000 and 1 million over the next three years.
Foreign Investment: Canada is known around the world as having one of the most stable economic and banking systems. People moving their money around in international markets feel there is nowhere in the world safer than Canada. The banking system and legislative controls over financing and banks, combined with our resource rich asset base in this country, make Canada top of the list for foreign investors.
Land Scarcity in Ontario: Due to the Provincial Places To Grow legislation which protects land belts from future development, builders complain that there is a shortage of land available for development thereby driving prices up.
Here is What We Don’t Know:
Minimum Wage: A large increase in the minimum wage came into effect this month and the impact of that remains to be seen. On one hand, it increases the buying power of millennials but on the other, it impacts businesses who may resort to reducing their labour pools. Either way, it will likely have some impact one way or another.
The Trump Effect/ U.S. How will Canada be affected by the corporate tax cut policy in the U.S., what will the outcome be of NAFTA negotiations, how far will Trump push North Korea? Any of these can and will impact us in Canada but those stories are yet to unfold.
Affordability: Prices climbed very fast in 2016 and 2017; over 50% in some areas of our Southern Georgian Bay area between the end of 2015 and the end of 2017. The profile of the home Buyer is changing. First-time Buyers have been shut out of the market. Investors have been buying up multi-residential units and GTA migrants make up the bulk of single family home Buyers now in the area. How far can prices climb before they stabilize or slide back?
Legislative Intervention: The Feds jumped in last year with policy changes making it harder to qualify for mortgages and a further round of changes came into affect January 1st with the new stress-test for mortgage qualification.
Supply and Demand: This is the key factor impacting our market. People don’t want to sell for fear they will not be able to find anything to buy and this has created its own vicious cycle. Another area to watch will be closings on new home subdivisions where investors snatched up inventory but now need to meet new mortgage rules to close on the deals. A large number of defaults could bring added inventory to the marketplace.
The supply and demand factor will affect our market more than any other factor in 2018.
Take a look at this chart to see the dramatic correlation between supply and average sale prices.
Impacts in Southern Georgian Bay
No matter what we read about national or provincial trends, real estate is always local. The market in Vancouver is entirely different than in St. John’s. For that matter, the market in Collingwood compared to Owen Sound, Barrie or Orangeville – all just one hour away, is also very different.
Our market here is changing:
- Considering the average wages of the local population and, considering the average house prices, first time Buyers are shut out of the local housing market. With the increased stress on qualifying for a mortgage now at 2% above the contracted rates, Buyers are also qualifying for mortgages at a lower amount. This has increased the competition for low priced homes which have given way to price increases above the norm. As a result, more people are having to rent but that also means more investors are snapping up lower priced properties and, rents have been climbing almost as fast as the housing market. This is not sustainable or healthy. First time Buyers will have to start looking at new solutions to afford a home such as lowering expectations, considering other areas than their prime choice, buying properties with built-in income, house sharing, etc.
- Many of our Buyers come from the GTA where home values have soared allowing for early retirement. It appears the common threshold for Buyers “downsizing” to our area is about $600,000 and as a result, homes up to this price level have been scarce and often sell with competing offers if they appeal to this demographic. Homes with main floor master bedrooms, full basements and double car garages in good neighbourhoods are top of the heap.
- We’ve seen real growth in the upper tier of the market. The top 10% of the market in this area now starts at about $825,000 and the top 1% at about $1.8m. Sales over $1m grew 42% last year with 4 condos sold over $1m, 8 single family homes sold between $2-3m and 3 homes that sold OVER $3m in the area. As the wealthy retire or, as they seek a vacation playground, the Southern Georgian Bay region has become THE place to be in Ontario.
In their forecast, RE/MAX is predicting an increase in prices in south Central Ontario ranging from 0-7.5% with the GTA remaining flat while the Royal LePage market forecast is predicting an increase of 6.8% in the GTA. Meanwhile, the Canadian Real Estate Association is forecasting a decline in prices of 2.2% in Ontario in 2018. If you are super analytical, PwC and the Urban Land Institute offer this in-depth analysis of emerging real estate trends in North America.
Really, forecasts are not consistent as usual. My own sense is that there is momentum in the economy and while we will see a slow down in the number of sales in 2018, the market will return to a balanced and growing state again barring any unforeseen events in the world. The long-term growth potential for the South Georgian Bay area is phenomenal and will benefit from GTA migrants and pure demographics. Prices will continue to climb but in the short term, expect sales to fall off with low supply continuing and with new mortgage rules reducing the number of qualified Buyers. In the latter half of the year, we may see supply increase and if there are further interest rates hikes, demand will decrease resulting in a softer market than we experienced in 2017. Expect higher demand in lower-priced properties in the first half of the year resulting in price increases. Over-all, I suspect we’ll see reduced sales numbers in 2018 with prices climbing moderately through the year.
Marg Scheben-Edey is a Broker with RE/MAX four seasons realty limited, Brokerage in beautiful Collingwood, ON. With three decades of experience, Marg is a leader in the local real estate marketplace and is ready to help guide both Buyers and Sellers in achieving their real estate goals. Email Marg