Property News July 2015
I am constantly asked whether the media is correct, that there will be a market correction. A market correction has been predicted since 1998 but so far it has not occurred. The reality is that at some point there will be a lack of demand for real estate brought about by fear or perhaps large increases in interest rates. This fear will create a temporary drop/correction in the value real estate. Unfortunately no one knows when that will occur. However, once that fear disappears and people get used to the new interest rates (we had a very strong market in Toronto in the early eighties with a 20%+ interest rate), prices will continue to increase again.
Why do prices continue to increase? Two major factors, one is the fact that there is constant inflation in the cost of building a new home. It starts with the cities charging more for supplying services such as water and sewage and more for building permits. The price of building supplies and workmen also increases, so as it costs more to buy a new home, existing homes increase in value. The second factor is population. As the city continues to grow through immigration and births, there is a shortage of living space and prices increase due to demand. Toronto is in its infancy of growth. We have 3,000,000 people compared to cities like New York and London, with populations of over 8,000,000.
Here’s the real question; do you really care about a price adjustment? If you’re planning to buy today and sell tomorrow for profit, yes you should be concerned about a price adjustment. However if you’re buying your home today and plan to live in it for the next 5 to 10 years, chances are that if there is price adjustment it will miss you and prices will continue to go up. If you’re buying an investment property and you buy it and you rent it out and you have a good tenant paying your rent, if the value of the property goes down by 15%, it does not impact your rental rate. And even if you decide to sell your home five years from now and the value of your property has dropped by 15% don’t forget that the home that you’re going to be buying will also have dropped by 15% so it really does not impact your ability to buy and sell.
My recommendations, ignore the media that is trying to sell advertising. Prices may at some point in time be temporarily depressed, but eventually due to demand, home prices will always increase.
Have a great July!
Your Friend in Real Estate
PS. Another record month of sales in June, with the average price of a home on the Toronto Real Estate Board increasing to $624,938
PSS. I am never too busy for your referrals!
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Toronto Real Estate Board - IDX Last Updated: 6/27/2017 7:00:27 AM