4 reasons why Kitchener Waterloo’s real estate won’t crash in 2016

clock tower

‘Bubble, what bubble?’ I wrote at the beginning of last year referring to the belief that KW’s real estate market would crash in 2015.

It didn’t.

It never does.

I was right.

Again.

Ever since I’ve been in real estate there has been talk of bubbles popping and prices crashing, but they haven’t. The opposite has happened. Prices keep going up and the number of homes sold each year, year over year keeps going up too. I read yesterday the that price of real estate in Toronto since 1996 has tripled. At least homes in KW are still affordable, relatively.

 

What happened in KW in 2015

The statistics for last year were released earlier this week. I talked about this yesterday on my new podcast. Here is the link. Briefly, average prices went up by 4% and the number of homes sold also went up by 4%. So, there was no bubble. There was no crash. It was business as usual. There was slow and steady growth, again.

 

There will not be a 20% drop in prices.

I don’t know where this mystical 20% drop in prices comes from but I hear it all the time. “I’m going to wait until the prices drop, until the bubble pops and then I’m going to buy”. There is no bubble. There will be no crash. The economy is fine. Let’s talk about Alberta.

 

What happened in Calgary, Alberta?

You would think that a with the price of oil dropping so quickly and by so much last year that it would have had a very large impact on the price of real estate in Alberta.

It didn’t.

Although the volume of homes sold in Calgary dropped by a whopping 26% last year, home prices dropped by only 2.6%. That is less than half the gains in prices from the year before. In a bad economy, people don’t have to sell. Prices don’t drop by 20% even when the economy is bad.

And, really if that ever happens, if prices drop by 20%, it will be so shattering to the economy that you or your spouse will likely get tossed out of work and you won’t be able to buy then anyway. If house prices drop by 20%, with so much of Canada’s economy associated with the housing market, it will impact you, no matter what you do.

 

It happened in Florida

“Well it happen in Florida”, goes the argument.

“It happened in the early 90’s”, goes another. Prices dropped, very quickly and very much and if you want to read an analysis of those debacles, there is lots of stuff to read. If that is your reason for waiting to buy a house, maybe you could work on your go-back-in-time machine while you wait. If you put your mind to it, you can accomplish anything.

 

4 reasons why Kitchener Waterloo’s real estate won’t crash in 2016

 

Supply and demand

People keep moving here. They can’t live in tents. We are building a lot of new homes but they are getting bought. I recently had a client move here and wanted to buy a new home from a builder’s inventory. There weren’t any. He had to pay and wait four months for a new home, just like everyone else.

In KW last year, the condo market saw both the biggest price increase and the biggest increase in the number of units sold. Personally, I think there is an oversupply of condo units (and more coming online) but this opinion is not reflected in last year’s stats.

 

The economy

Sure the Canadian dollar is low and the economy is a little sluggish (at least that is what I read), but employment and the other economic indicators are decent enough. I don’t know anyone who got thrown out of work last year. I read the new car sales were off the charts last year. People don’t buy a new car (or house) if they don’t have confidence in their ability to pay, do they?

 

Mortgage rates

(This paragraph can pretty much write itself.)

Mortgage rates are historically low and may slowly move up later this year.

They may move up.

As long as I’ve been a realtor, we’ve been harping on about interest rates going up…and they haven’t.

 

Bubbles sells newspapers

The economy is a much much different place than it once was. This bubble is based on, historical economic information from days gone by. If we were still all driving Pontiac V8s and listening to Huey Lewis cassettes then it would be relevant. The local real estate market is tougher than diamonds, rich like cream, stronger and harder than a bad girl’s dream. (Paraphrasing ‘The power of love’.)

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