Real estate’s been the asset of choice since stock markets imploded in 2008, ushering in the greatest housing boom in Canadian history. But all booms end. Here are five trends you should know about to survive the next phase.
1. There is pent-up demand, but from sellers not buyers. Last year brought new mortgage regs, tighter regulations, slowing sales and the first negative media housing stories since the bust of the early ’90s. As a result, sellers withdrew their properties rather than extending listings and risk getting vultched in a crappy market. That drought ends soon. If the winter continues to be wimpy and warm, Realtor Spring begins on or about Jan. 20. Thinking of selling? List early.
2. Rates will be higher in 2013 but not because the central bank wills it. The mighty bond market will make it so, as money flows out of fixed income into equities. VRMs won’t move, but fixed-rate loans will, enough to ruin the finances of many people with loans coming up for renewal in the summer and fall. Deal with it early. Like now. If you have a renewal looming, go five-year fixed.
3. Enter condo mayhem. It is hardly news that Ottawa’s recent changes will blow up the condo market first. The numbers are grim. In the GTA there are 6,000 resale condos listed, and sales last month crumbled by 25 per cent. More than 17,000 units are new, yet vacant. And there are 53,000 more in the pipeline. The greatest damage here will be to the psychology of a whole generation of buyers who will see friends’ finances destroyed by their unbridled and naive horniness to “stop throwing money away on rent.” Instead, they just lost it.
4. The mainstream media, as usual, will declare the housing market healthy so long as prices don’t collapse by a third. But what really matters is being unable to sell your home. In 2013 this’ll be the thing more and more homeowners lose sleep over as sales decline, buyers realize time’s their best weapon, and days-on-market turns into months-on-Prozac. If you’ve been thinking of selling, price aggressively from day one, below recent comparables.
5. Location is king. For almost four years real estate went up everywhere. Now it’s going down but selectively. Hardest hit will be those areas where the largest proportion of people took on the most financing — and where the average home price is the greatest multiple of local household incomes. This is why Vancouver, for example, will fall (and is) before Toronto.
All real estate is local. Nothing trumps supply and demand, and where demand is less affected by tighter mortgage rules, shorter amortizations or million-dollar insurance caps, expect a different outcome. People will continue to want areas people have always wanted. I think this is called Post Country.
Post City Magazines’ real estate columnist, Garth Turner (greaterfool.ca), is an author, investment advisor and former MP.
