The spill-over effect

spill-over

This blog post will discuss Canada’s bifurcated real estate market and how the spill-over effect is affecting Kitchener Waterloo’s demand for houses.

Some common themes of mine is that everything is related, what goes around comes around and how you do something is how you do everything. I like to talk about the butterfly effect. I am a student of economics and of human nature. I’ve lived long enough to see things happen and I’ve been paying attention. Macro economics moves pretty slowly. The real estate markets is like an ocean liner, the Queen Mary or some supertanker, you can’t turn it around quickly.

But lets talk about housing markets.
Out in Alberta, with the oil shock last year the prices of homes dropped a little bit and the volume of sales dropped by a lot. In January of this year in a blog post titled ‘4 reasons why the KW’s real estate won’t crash in 2016’, I wrote:

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.

With that post, I was mostly right but partly wrong. Prices do drop eventually. Prices in Alberta have been dropping for seven straight months now and the total inventory of homes for sale increased by 10% last month. It is not fair is it? They have the market that so many of my buyer clients here would just love. The market in Alberta is starting its long slow turn. But that is not the point. I don’t particularly care what happens in the Calgary housing market, except for how it impacts us, here in KW.
Yes, some of our friends and neighbours, those economic nomads and refugees who went out to the oilfields and to work in Alberta’s booming economy are coming back to Ontario now. I remember one lady telling me a few years ago when she was setting out that Tim Horton’s offered her a $500 signing bonus to take a job there. I lost my contractor to Alberta and a cashier who used to work at the local Valumart went out too. But that is not the point either. Alberta is important, but not because people are moving back. It is important because the drop in the price of oil lead to the devaluation of the Canadian dollar which in turn made Canada’s economic home base (Ontario) cheap again for exports. Yes. A low dollar and we are back in business. What’s bad for Alberta is good for Ontario.

Butterflies and spill-overs
And then there is China. Foreign investment from China and other places is driving up prices in Toronto and Vancouver. We are, in KW, close enough to get a spill-over effect as some Torontonians decide to cash out and move here or are pushed out, not being able to buy there. Not to mention Toronto area investors, too late to invest there, deciding to invest here. I’ve got anecdotal evidence of organized bus tours from the GTA to Vista Hills where investors get off the bus with chequebooks in hand.
Canada’s immigration levels are at an all-time high. Many new immigrants start out in the major urban centres and guess what? Kitchener Waterloo is now a major urban centre. We took on a lot of Syrian refugees. I can’t recall the numbers but it doesn’t matter. It is all related. It is all impactful to our local real estate market.
And there is one more thing. If Donald Trump gets elected, if 1% of all the Americans who say they are moving here actually do, we will be overrun.
So, we are more than 1/3 of the way into the year and there is a lot going on. Even if things suddenly changed tomorrow, it would take more than another 1/3 of the year for things to resume to the way they were last year.
Our real estate market in Canada is bifurcated. We in KW, are part of the fast moving stream.
Here is a quote from Buzzbuzzhome News:
In Canada, Australia, Denmark, and New Zealand, home prices are rising the fastest in a few major ‘gateway’ cities that act as powerful magnets for people and money, while prices elsewhere remain on low simmer, running alongside growth in local income.
If you cut Ontario and British Columbia — which between them claim six of the fastest-appreciating markets in the country, the average price of a Canadian home last month falls year-over-year by 1%. With those provinces included, the average price was up 15.7%.

 

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