In Vino Veritas

IN VINO VERITAS ~ In Wine there is Truth

February 3rd, 2021.

All of the "factors" affecting this crazy market… that's just the wine talking.

The truth is, there is a housing shortage.

Construction:

There has been a shortage for some time, and pandemic delays means there will be for some time to come. It is a Supply and Demand issue. There are not enough homes, more accurately, not enough of the homes that people want to live in. The government can demand developers build small "affordable" units looking at the train tracks, but that's not where people "want" to live. 

This last year, like having too much wine, has just amplified the housing shortage.

People need somewhere to live. In 2020 we had less than 30,000 housing "starts" and 100,000 people, or family units, that need some form of housing. 

Interest Rates and Free Money:

We don't buy houses for cash, we use other peoples money and we live in the payments. 

Free Money is making it more affordable for first time buyers, move up buyers, and Real estate Investors. I just refinanced one of my investment properties at 1.58% changing my mortgage from $1,973/m to $1,172/m. TD now offers 1.55% Variable, 5 yr Closed, with a 30 year amortization.

At this historic low interest rate - roughly 75% of your mortgage payment is going back to you - as pay-down of Principle. So, if you pay $100,000 in mortgage payments over 5 years, you paid yourself $75,000. 

Passive Appreciation on Leveraged Cash:

Real Estate is still a great investment. That investment property I mentioned appraised at $490,000 last year and $580,000 this year. The house made $90,000 while I was sleeping. We bought it for $340,000 in 2017; with a 25% downpayment of $85,000, we made 106% on our initial investment just last year. Less Expenses of course, but add Cash Flow and $20,000 / year of Principle Pay-down. 

We need to live somewhere - rent or own - either pay our mortgage, or pay our landlords mortgage. 

People are saving money:

It is cheaper to live when we all stay home. We know there have been huge job losses but many homeowners are still doing well. Personally, I miss the kids activities and family outings but that is money saved. No new suits, less lunching, less driving, no Disney trip...

The money I saved on Starbucks alone would almost cover another mortgage. 

Need to Buy First:

People realize that if they sell, they will need somewhere to go. This is creating a log-jam. I am generally recommending the Buy First - Then Sell strategy, and until more listings come on… the lack of listing supply drives up the prices. The industry calls this a lack of inventory. The first lockdown saw a dip between St. Patricks Day and Victoria Day, but that just created more pent-up demand.

Migration to the Suburbs and Exurbs:

Exurbs are all the rage. The Exurbs are the "prosperous areas beyond the suburbs". Years ago that meant Oakville and Burlington, but today that means Grimsby, Binbrook, Lincoln, and Niagara-On-The-Lake, or to the North, Wasaga Beach, and Collingwood.

Many folks that were not retiring, or not moving, have decided that maybe an "Active Retirement", or working from home near the lake and coming to the city for meetings now and then, may not be a bad idea.

Move-up buyers are selling their 2 bedroom condo downtown for $700,000 and buying a Semi-detached 3 bedroom in Burlington for $800,000, with a back yard, 2 parking, & no condo fees.

At 1.55%, saving $700 per month in Condo fees, and applying that money to your mortgage payment, means another $200,000 in buying power.

What about apartment Condos:

Condos had softened, but... are now starting to pick up again. The Toronto condo market will recover. Condos are Housing - and remember what I said - there is a Housing Shortage.

When will the Bubble will burst:

Prices go up, prices go down, and anything could happen, but let's look at some scenarios. I moved to Toronto from the farm in 1994 and everyone then told me Toronto prices were too expensive. I became a Real Estate Agent in 2008 during the recession, and everyone said I was crazy. We had a government 16 point plan to cool housing in April of 2017 that did slow things down for a while, but as you can see, that was short lived. 

Because - it did not address the root problem - we have a housing shortage.

But what if the bubble does bursts, by a crazy amount, like 20%... sure, ok, that puts us all the way back to... November pricing. As long as you can afford the mortgage payments and don't need to sell, we know over time, the market will recover.

If you are worried about payments - you can get a 10 year mortgage - with no penalty for cancelling after 5 years.

When will it slow down?

It's been really hard to predict this year, and I don't support speculating in real estate. Move when it is the right time for you to move. 

If you are waiting for prices to "come back down", I think you likely missed it. 

That little dip last spring has shown us that Real Estate is solid.

In fact, once the pandemic is over, and people start moving to Canada, and migrating to the Toronto area again, I firmly believe that prices will go up.

I am hopeful that the Spring Market will bring more listings, which will take some of the pressure off. I'm hoping for a levelling, or a less steep curve. I can't imagine prices will go down any time soon.

It will continue to be a Seller's market for the near to mid term.

(Because there is a housing shortage)

Of course, if you, or someone you know is looking to make a move, or would like to learn about investing in Real Estate, please give me a call with their information. I promise to follow up and take great care of them. 

Oh, by the way… I'm never too busy for you, and I'm never too busy for any of your referrals.

www.CallRob.ca