Where’s the Real Estate Market Going From Here?
By Brian Madigan LL.B.
On October 20, 2009, the Bank of Canada agreed to hold interest rates at 0.25% until mid 2010. Effectively, that’s the next three quarters.
The central bank wants to control the value of the loonie compared to the US dollar. That will aid the economic recovery. Inflation is secondary. Any effect of higher prices in the housing industry will be dealt with later. For now, the low interest rate tool is being used. Later, rates can increase to control inflation.
So, what does this mean for the housing sector?
• Increased prices to start
• Followed by increased supply to meet the demand
• This will slow the increase in prices
• Higher rates will dampen the real estate market and depress prices somewhat
• The sellers’ market will stabilize, to a balanced market and then return to a buyers’ market
With that economic backdrop in mind what are the areas that should do well?
First, coming out of a recession, the entire market cooled off and stabilized. There were no recent gigantic gains made anywhere. So, what properties are due for a big increase?
Actually, it’s all the preferred properties. This is the time in the market where they move. When the market starts going, it’s the “good stuff” that moves first. These are the well-located properties in the best neighbourhoods. They are the ones that forge ahead at the outset of a new market.
You don’t have to look any further than Forest Hill, Rosedale, Moore Park, Lawrence Park and the Kingsway for the place to be. These areas move first in value. Other areas follow suit. The next areas to move will be the immediately adjacent secondary areas. They will take off next. The third areas to move will be those located in the periphery of the secondary zones. The market will move somewhat like the concentric circles around a stone that is dropped into a pond.
Eventually, the increases work themselves through the entire marketplace.
Now that low interest rates are the key motivating factor, you will also find that lower rates, also reduce the barriers to entry. More people can afford homes. So, the lower priced areas will increase in value and that will also work itself through the marketplace.
This particular market will have two prevailing trends:
1) geographic well-located properties, coming out of a recession, and
2) inexpensive properties by reason of the low rates.
If you wait a little later in the market, expensive properties in less desirable areas will move up in value too. This particular cycle has 9 months to run. Traditionally, the highest annual values are reached in mid June each year.
If everything continues as it should (and it never does) this particular market should be peaking in June 2010. That’s when the Bank of Canada will raise interest rates to dampen inflation and slow down the housing sales.
But, then again, who knows?
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com
