Written by: Mimi Gebremedhin -
While 2016 proved to be one crazy year for real estate across Ontario, the question on everyone’s mind is: What does that mean for 2017? If you are a buyer, I am sure you’re wondering if buying now makes sense. If you are a seller, you’re wondering if you’re going to miss the biggest pay day of your life. There are mix messages from market watchers; some believing a drop in sales prices while some feel fewer homes will be sold; however, who is right? Unless we use a crystal, ball no one can tell us exactly what the real estate market will do, so the best approach is to make an educated prediction based on analysis. Generally speaking, if we apply the law of supply and demand, we should expect higher prices. In other words, when there are more buyers than homes for sale then a seller’s market is in effect. GTA is home to 6.8 million people and the government expects the population will reach 7.9 million by 2026. With this statistic alone we understand that the demand for homes will continue to rise as people need a place to live. Have you asked yourself what is driving up these house prices? You might assume its foreign buyers, but the truth is that this is not the case. According to a recent survey by Ben Myers who researches trends in residential real estate for Fortress Real Development, he confirms that domestic investors alone make up 25% while he estimates that foreign buyers make up no more than 5 to 10 percent of home purchasers in the Greater Toronto Area. The investment in Residential real estate has grown faster than many other investments in recent years. It’s very common to see investors with 2 or more properties. They are sometimes buying homes to renovate and quickly sell, while others are buying homes for their rental income. Investors use the equity in their primary residence to buy another house in an attempt to capitalize on the hot market. They also have an advantage during the bidding process, they don’t have to make an offer conditional on selling their existing home, bypassing a home inspection and financial approval. Their greatest advantage is they are capable of paying $100,000 or more to win. Bidding wars have become a part of the real estate occurrence and it is a lot like gambling for example: A buyer with the purpose of purchasing their primary residence will get a mortgage approval for $500,000. The asking price is $480,000. If Buyer is competing for the same property, he/she can only gamble with $20,000 so when faced with bidding war, first time home buyers have no fighting chance. Despite the high interest rates and the new mortgage rule implemented in October 2016 you can expect the current trend to continue this year; but don’t panic. Understand market trends and make informed decision that are best suited for you. Remember that the market is cyclical. It’s been so strong that we just expect it to continue; and of course, it can’t. If there isn’t a decrease in prices, then you can expect prices to plateau and level off at some point.
