The kids are (finally) back to school and the parents are looking at this yearly event as a bittersweet one. It means that summer is coming to an end and their time can be spent more focused on work and in many cases planning a change of addresses. The times people plan to move seem to be the start of a new year, when the income tax returns come back in a big way and once the kids settle into their new school year. This is where we are currently.
Let’s take a few minutes to look at how the landscape for Real Estate has changed from this time last year.
| Average price Sept/23 | Average price Sept/24 | |
| Oshawa | $862,000 | $860,000 |
| Clarington | $923,000 | $887,000 |
| Whitby | $1,115,000 | $1,091,500 |
It appears that over the past year Oshawa detached home prices have stayed the same with Whitby prices falling by 2% and Clarington prices declining by 4%. This indicates that the market has struggled over the past 12 months however there seems to be change in the air. One major change from this year over the last two are mortgage rates. In 2022 we saw rates increase 10 times and last year, the rates remained higher than they have been for years. In 2024, we have seen the rates drop 3 times lowering the rates by ¾%. This may not seem like a large drop but on a $500,000 mortgage it lowers the payments by $210/month or on a $1M mortgage the payments come down by over $25,000 over a 5 year period. This is a positive change and with economists forecasting the rates to continue to drop the market will improve month by month.
I have seen 3 major “shifts” in Real Estate in my 40 year career and there is one constant that brings the market out of a downturn. The constant is certainty. When a downturn happens, be it caused by inflation, high mortgage rates or a recession, certainty disappears. The conversations about how high can Real Estate values rise or gossip about bidding wars turns into a sense of dread and that Real Estate is not a sound investment long term.
Investors know when things turn south, that is the time to buy.
Looking back in time I remember the market crash in 1989 where the values dropped by 30% in a year and Real Estate became the “black sheep” of the investment world. At this time a local builder purchased some land that was mostly floodplain at a severely discounted price. He ended up sitting on the land for a few years and ultimately created a 9 hole golf course on the property. Investors know that when the market stalls, that is the time to invest.
If we look at the things that spur Buyers to move, they tend to be mortgage rates and the cost of Real Estate however there is another factor that comes into play when properties are viewed more as investments than a place to live in. This would be the cost of rent. Rents have jumped over 22% in Canada in the past 2 years and have stabilized at this level.When investors shop they look for low purchase costs and high rents. Here is how the math would look for an investor interested in a legal duplex in Oshawa at $800,000. With $200,000 as a down payment, the carrying costs would be $3,900/mth. (Including mortgage, taxes and insurance.) The rents for a 3 + 2 bedroom home would be about $4,500/mth leaving about $600/mth for the investor to pocket. Within a 5 year cycle, the rents would increase by just over 2% per year increasing what the investor would pocket.
Over a 5 year period deducting the rent collected from the carrying costs would leave $47,000 left over and assuming the owner paid the minimum monthly mortgage payments, they would have paid $71,000 off of the mortgage principal. This total of $118,000 would indicate a return of over 50% of the investors down payment. This is based on the values staying static and not increasing. A sound investment a financial advisor would agree to. In the event the values increase at 4% per year, the investor would add another $175,000 to their return totalling $293,000 in total or a 146% return on their original downpayment.
It is easy to see why investors buy during a downturn.
There are many variables when it comes to buying a home to live in or an investment property but one thing is certain – Real Estate continues to grow in value and provides a sound long term return. The trick is to get into the market when a downturn is happening.
If you are looking at getting into the market or for an investment property I can be reached at lindsay@buyselllove.ca or 905-743-5555.
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