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Why Is The Real Estate Market So Hot and Will It Last?

Posted by Sherry Rioux on May 31, 2016

Ready Set Sold ConceptThe real estate market in Ontario is red hot with the demand for homes outstripping the supply.  Competing offers are the norm in certain segments of the market and many properties are selling above their list prices.  So what is going on?

I have to say that I wonder about that too. In my 27 years of selling real estate, I have never seen such a market myself and the pace is breathtaking. Buyers are no longer in the driver’s seat with sellers refusing to negotiate and in many cases, accept conditions. For sellers, the challenge is selling and then being in the same boat as they become buyers with nowhere to buy if they are upsizing, downsizing or changing locations. It becomes a cycle that grows like a swirling eddy.

In my opinion, we have a perfect storm of market conditions:

  • Low interest rates which are both a reason to buy a home and a reason to buy investment property
  • Strong job growth in Ontario to support mortgaging
  • Climbing home equity values which people are tapping into for their next purchases and or to buy secondary properties
  • Not enough construction to satisfy the demand for new housing
  • People moving farther and farther out of the GTA in search of affordable housing
  • Baby boomers cashing in on home equity and/or inheritances to buy recreational vacation homes
  • Millenials being supported with gifts from their boomer parents to buy a first home as panic sets in
  • Recent retirees wanting to make permanent homes in four season lifestyle communities like we have here in South Georgian Bay
  • Foreign investment in Canada running at an all-time high. Macleans magazine recently featured an article on the topic of how Chinese real estate investors are re-shaping the market and, it’s worth a read if you want to better understand this important phenomenon.

So that brings us to the burning question, will it end?  Of course it will. The frenzy will any way and at some point, things will stabilize to a new normal.  I very much doubt we’ll see any bubbles busting or a significant downward trend in pricing as the wealth creation brought on by these sustained market conditions is now embedded into our economy.

What we may see is a movement by the Chinese government to stem the outflow of currency from their country and this could certainly slow down some of the fuel in the market after a period of time.  We could see interest rates climb however, they would have to climb significantly before we see it having an effect on cooling the market. Other than these, it looks like there are no imminent reasons to see a cooling off.  In fact, it may be the opposite.

Right now, we are seeing the Ontario government bring in new targets under the Places to Grow legislation which will further reduce the number of detached homes for sale in many areas of the greenbelt resulting in even greater interest in communities like Collingwood. We see investors trying to buy both recreational and full-time investment properties in our unique community. We are at the tip of seeing foreign investors and new Canadians discover the value of our clean, safe and vibrant four-season area.

I don’t see signs of relief ahead anytime soon and many economists are saying the same thing. As my first real estate boss used to say, the best time to buy real estate was 200 years ago.  The second best time is today. Maybe he was right.

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