Canadian Real Estate Market Should Stabilize Soon

Canadian Real Estate Market Should Stabilize Soon

The US and Canada have both felt the sting of inflation over the last 3 years. Each area of both countries' economies has been affected by rising costs and supply chain shortages. This includes the real estate market across both countries.

In 2021 we saw an incredibly active buyers market, as homes were priced affordably and investors lined up to purchase properties in hopes of making a profit. The US experienced a hike in prices on existing homes in 2022. This drove sales numbers down, and interest rates up.

According to Bankrate, the average median cost for a home in the US topped $400,000 for the first time in history during the spring of 2022. The report states that "Even after a recent retreat, prices are up a robust 32 percent since the coronavirus pandemic began in March 2020, according to NAR data."

It appears that the bidding wars are largely over in the US and the market is seeming to settle down into some normalcy. The National Association of realtors released a report in December of 2022 predicting that the market would settle and we would see some stabilization in prices and interest rates.

The Toronto, Canada market however saw a somewhat different movement in prices. The first quarter of 2022 showed similar movement to the US market, with home prices rising by 20.9% year over year. This number did fall slightly below the national average.

Royal LePage, a respected Canadian real estate company, predicted that Toronto home prices would rise 16.5% in the 4th quarter of 2022 when compared to the same quarter of the previous year. 

However, according to the Toronto Star, this never became a reality. Instead, Canadian home prices dropped year over year by 4.6% in the 4th quarter. That marked the third consecutive quarter that home values declined in Canada, and it left a bitter taste in many hopeful sellers' mouths.

The sales boom that began in May of 2020 had come to a grinding halt in 2022. The wake of Covid 19 inspired buying frenzies was now just a memory for investors and real estate agents alike. 

The causes for the sudden turning of the tide in the Canadian market are many. However, inflation most certainly played a big role. The rising cost of goods and services, driven ever higher by the supply chain shortages associated with the pandemic, had reached the real estate market.

Investors began to question their investments, and many even opted not to invest in real estate in the Toronto area. However, that may not have been the best choice in terms of long term profitability.

The downside of increased inflation includes higher mortgage rates, an increase in construction costs, and is often accompanied by higher asset prices. However, in the Toronto area, while the first two characteristics ring true, home values declined last year. This could be a silver lining for investors.

Buying at a reduced rate opens the opportunity for a higher return in the future. One positive side of inflation is that it will actually eat your historical debt. Any debt you have prior to inflation becomes devalued, making your money worth more with each payment.

During periods of high inflation, investing can still be very worthwhile. This is especially true if you invest in rental properties. Most people cannot afford to purchase a new or existing home during times of high inflation. This means they must rent a home in the city they choose to live in. 

By investing in rental properties you offer people the opportunity to live where they wish to live, even if they cannot afford to purchase a home there. These rental properties, if properly researched prior to purchase, can be veritable gold mines for investors.

If you already own rental properties before a jump in prices, you have the ability to turn your property into a protective wall against inflation. When prices on homes go up, so does the rent on existing rental properties. This means you can increase the number of dollars your property earns by simply following the economy upwards.

If you purchased a home with the intention of selling it, inflation is your friend. As home values rise, you have the opportunity to sell your property for more than you may have originally intended. 

While home values are currently down in Toronto and other areas of Canada, they will not remain that way forever. Buying investment properties in markets like these could be a great decision. Fix and flip investors have the opportunity to grab homes that are currently devalued and then ride the next wave of price hikes to high profit sales in the future.

Rental property investors have the opportunity to purchase future rentals at reduced prices and set them up to be long term income generators. While renting property to tenants is more risky than selling the home outright, it is often the most profitable means of earning with your investment.

The Canadian real estate market is beginning to settle, according to Global News. In a report released just prior to the new year, the news site said that it appears the market is slowly beginning to right itself.

There is a good chance home prices will hit their low sometime in the spring of 2023, but analysts believe that it will begin to normalize after that. The report also cautioned that these changes would vary from market to market.

Investors should be paying attention to what their target market is doing and invest accordingly. If the opportunity to buy low and sell high appears, it might be the right moment to buy.