For the past few years, we have heard that we are in a housing crisis with the common reasoning being that there are not enough homes for sale to meet demand. Here are some points to ponder that may give reason to think the issues are much deeper than supply issues.
Let’s begin with what we all have felt is our main issue: low inventory. A snapshot of where we are reveals that inventory (new listings) is sitting at a 20-year low nationally. (This is outside of pandemic metrics.) Making this lack of homes for sale even more of an issue, we have 8 million more people in Canada than we did in 2003. People who choose to settle in Canada need a place to live and with rentals and housing supply at record lows, the market becomes stressed.
Several things worth considering are that there are some very valid reasons people are not selling their properties. Having seen values increase and then drop, many homeowners are reticent to sell until values increase. Other reasons are homeowners who have locked into mortgages with low rates compared to current rates are hesitant to give up low payments, and some owners who have had job insecurity are choosing not to move knowing they would not qualify for a new mortgage.
So, people are staying put.
Common sense would cause us to think all that we need is more inventory, however, it isn’t that easy, and inventory will only soften the issue, not cure it. Our provincial government has a goal of encouraging the building of 150,000 homes a year which is not only a lofty goal, but one that is viewed as unachievable. In 2022 there were 96,000 homes and projections for this year are a drop to 80,000. There are many hurdles in creating new housing, with one of the main challenges being Ontario needs 72,000 tradespeople to meet the new demands. This leaves the open market with less inventory to meet demands.
Another reason that is rarely talked about is that elderly homeowners have little choice if they choose to sell their properties. The average rents in Canada have mirrored the values of Real Estate, however as the prices of homes have softened over the past year, rents have increased. In fact, rents in Canada have increased by 10% over the past year with Toronto condos increasing a shocking 41% since mid-2021. I have found many elderly homeowners stay put rather than move due to the cost of renting and the difficulty in finding rental accommodation. The other alternative is to move into assisted living or some form of a retirement community. We recently had 2 sets of clients move to an assisted living complex with one of the couples paying over $8,000/mth. The result is people are staying in their homes for far longer than they would choose.
I have read countless articles about how the rates increase will cause some homeowners to become delinquent in their payments, causing distressed property sales to hit the market. Banks are resilient and what we are seeing are lenders working with clients to soften the mortgage rate increases. Lengthening the amortization of the loans is one way of reducing monthly payments, and with the stress test in place since 2016, many homeowners can afford the increased payments. (Even if painful.)
One thing is certain – adding more inventory will slow down the increase in values slowly, however when we see how supply and demand work, the demand side explodes when the trend is to buy. We are seeing a Catch-22 – lenders doing what they can to keep people in their homes, homeowners with few options to cause them to move and a government with “aspirational” goals to build more homes without the labour or resources to achieve their targets.
So, people are staying put.
If you are a Buyer what is your best course of action in a market like we have today? Get in. Get your foot in the door. Do what you can to enter the housing market.
The silver lining is that there are options. This market is not going to become a Buyers’ market in the foreseeable future. We have had a few young Buyers opt for student condos on Simcoe Street to get a “toehold” in the market. One unit at 1900 Simcoe Street sold in July/20 for $220,000 and in January of this year resold for $310,000. That is an increase of 40%! As difficult as this is to say, getting in is as important as what you buy. 5 years from now we will most likely be looking back at summer 2023 wishing we purchased a rental property or a first home.
If you have questions about buying a first home, an investment property or selling your current home, I can be reached at lindsay@buyselllove.ca or 905-743-5555.
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