The recent news that Alberta is now the most "affordable" place to own a home only emphasizes the strength of a fundamental investment principle. And that is, The Housing Affordability Index is one of the strongest indicators for which way real estate prices will swing.
The index is available from most major banks, or you can get a recent copy from our web site here. For those of you new to the real estate investing business here is how it works. Its a ratio ( %) that takes the average income and divides by the average home price. The outcome is the percentage of money used to pay for a home.
So taking that information and applying to a property investment strategy, we can see that areas where real estate affordability is low ( 25% for example) will see a growth in demand. That is, people will be able to afford to buy a new home. If people can afford to buy a new home, then demand for housing increases, and therefore prices will likely go up. If prices go up, supply will increase to meet the demand ( in a free market economy) thus creating jobs. Jobs will in turn create more money in the local economy, decreasing vacancy rates and in turn increasing demand for housing- again.
That is a quick overview of how important and wide reaching the housing affordability index is to real estate investors. By studying the rate and seeing where housing affordability is at its lowest, you can determine where real estate investment property likely be in demand.
As it stands now, Central Ontario, Barrie, Orillia and Innsifil areas, the housing affordability index has remained relatively flat at 38-42%. Greater Toronto is pushing 45-50%. This is on the high side. Pundits and economists say that a balanced index is from 27-35%. Therefore Barrie and Orillia are on the high side for housing affordability.
What does this mean for Real Estate Investors in Ontario (Orillia, Barrie, Midland)?. If we go by these numbers alone, we will see a softening of prices because houses are too expensive for the average person. Remember, we need see the housing affordability index at 35% or below. So real estate investment properties in turn will reflect what the general housing market is doing.
Put it in practical terms, investment property prices are at the high end of the cycle. We may see a flattening out or a decline. The strategy for real estate investors in the short term is to sell ( if you want to take advantage of what the housing affordability index is saying).
Once housing affordability gets below 30 or 35% then that may be the time to buy...but right now housing affordability in Ontario is on the high side. In laymans terms, the average person will have a hard time buying a home.
If you require more information on understanding the Housing Affordability Index and Real Estate Investing, especially in Barrie, Orillia and Innisfil areas of Ontario please contact us at 416-779-2897
Or for more thorough information on all things related to real estate investment properties please visit our web site Mana Investments
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