February 25, 2022

IS NOW THE TIME TO TAKE RISKS?

I’m an optimist. Always have been and always will be. I believe that I work in the greatest industry in the world. I mean, where else do you get to help people build lives, find shelter, create a home and build financial stability and wealth.

But even I have to admit that there’s a lot of negative energy piling up on the real estate market these days. What does this mean for the market in the short and long term?

What might we be dealing with this year? What will the impact be on the market?

War in Ukraine. Interest rates rising. COVID, endemic, new variants. Inflation. The economy. Supply chain issues. Housing supply and demand. Political intervention.

There is a lot of negative energy in that list, and there will likely be some sort of impact on the real estate market, at least in the short term.

In the long term? Who knows!

The real estate market is like any other market, subject to outside forces like extremely low interest rates and population growth driving demand and prices up. What impact will any or all of the above issues have on our market this year?

From a buyer’s perspective, should you be holding off and waiting to see an actual impact from rising interest rates, or confidence in the economy taking steam away from the market? From a seller’s perspective, should you jump into the market before it turns, or hang tight and see where things go?

The correct answer depends on your unique circumstances.

Even in some of the worst markets, people still need to buy and sell. They need a larger home, need to downsize, relocate for a job. The housing market will have an impact on the price they’ll pay or sell at, but it isn’t going to deter someone from participating in the real estate market if they have to move.

This was very evident early in the pandemic. Yes, the market took a tremendous pause and slowed to a crawl, and you also saw how quickly it began to recover as people went about their day to day lives and adapted to COVID.

Over the past 40 years, the average annual price growth in the Guelph real estate market has been around 4%. Some years we’ve been below the trendline, like in the late 80s with interest rates in the double digits. Other years we’ve been well over the trendline – these past few years as an obvious example. I’ve said this countless times over my 36 year career: real estate is not meant to be a short term “investment”. I’ve always encouraged clients to think in 5 year intervals. The idea being our market moves in 5 year cycles, so if you hold long enough any price loss is recovered by long term appreciation. Lately it seems that the 5 year cycle has been stretched out, and other than a short pull back in 2018, we’ve been running well above the growth trendline.

What does that mean?

We’re likely overdue for some sort of correction in the marketplace, and those 8 items above may be the trigger(s) that start us down the path of correction back to the trendline.

Should you panic? Absolutely not. That is, unless you’re in the market speculating on continued massive price increases.

Each of the issues we see as possible challenges to our market have been around for a while. For example, interest rate increases (at least 2% worth) have been baked into the market with the stress test that each buyer needs to pass as part of their mortgage qualification process. How much each of these will impact the market is the unknown, and sorry to say my crystal ball has been dropped too many times and doesn’t seem to give a clear answer any more.

My point with these ramblings?

Live your life as you want. Take into consideration the potential impact these events could have on you and your family, your lifestyle, and your long term goals. And, don’t be powerless to them – risks should be weighed, not avoided. We can’t control any of those issues, yet we can control how we choose to react to them.