BUILDING DEMAND

Do you remember when the local real estate market was acting normally? It’s been over two years since we last saw market conditions remotely close to balanced.

As the chart below shows, the number of sales in the Guelph real estate market have been growing year-over-year. Guelph has become a destination of choice for many buyers, as well as a destination by qualification for others.

Not exactly a news flash, but stay with me on this as we attempt to bring some clarity to what has been a frustrating and very murky market.

Above, the blue bars represent the number of homes sold in the Guelph market each month from January 2016 to October of 2021. The orange line represents each month’s corresponding number of new listings. The peaks and valleys indicating the cyclical nature of real estate sales in our market becomes evident in this chart.

The most noticeable change in the chart is the closing gap between new listings and new sales each month. You can see in several instances that sales exceed the monthly intake of new listings. In a normal market, where there are usually 4 to 6 months of supply, months where sales outpace new listings is very manageable and doesn’t cause market imbalances.

The trend we are seeing in the Guelph market shows a narrowing gap between new listings coming onto the market, and the growth in monthly sales. In a seller’s market like the one we’re in, there is no cushion of available homes left over from previous months to absorb the extra demand. The trend lines in the next chart show that over the next 36-48 months, new monthly sales will intercept and exceed the number of new listings coming into the market.

Assuming we don’t have major economic bad news or issues, our market conditions won’t be improving significantly until supply issues are addressed.

Much like the supply chain issues that are making headlines today, the pandemic has brought the real estate supply chain issues into sharp focus as well.

The simple answer, of course: build more housing.

One of the biggest challenges facing the new home construction industry is the length of time it takes to approve a piece of land for construction. According to Canada’s Economic Strategy Roundtable published in 2018, Canada’s complex regulatory system is one of the prominent deterrents to increased investment. They identified regulatory inefficiencies that showed that in Ontario, it took an average of 249 days to get a housing development project approved. That’s 100 days more than the average for other OECD countries. This doesn’t include the time required to plan and design the site, or the time required to actually build. It becomes clear that a 2-3 year window before a shovel starts digging a foundation is required.

A recent report by the Canadian Centre for Economic Analysis suggests that a 6 month reduction in the process time for a developer would result in an additional 33,100 homes being built within a 5 year period. It was expected that the same time reduction would inspire up to a 10% increase in investment for new projects, and add a further 39,800 homes for a total of 76,200 new homes housing 184,900 people. This, on top of the average of 200,000 new homes built in Canada on an annual basis. A 38% increase in new homes available for sale across Canada would certainly go a long way to increasing the availability of housing.

Our conclusion is that we don’t expect market conditions to improve for buyers significantly over the next 3-5 years. The robust housing market in Guelph is directly tied to the lack of available homes for sale, a growing affluent population, and what will be an era of enormous generational wealth transfer. Any efficiencies and improvements on the development process with the City of Guelph will help keep this market from completely running away.

Next week we’ll take a deep dive into generational wealth transfer and the local real estate market.

Enjoy the weekend.

This weekend is also the Junction Virtual Holiday Market. Our brokerage is a presenting sponsor of this event, as part of the Junction business hub. This event is an online marketplace where you can shop 20+ local businesses offering exclusive deals and great gifts, plus the event is a fundraiser for Community of Hearts. Support local & get your holiday shopping done from the comfort of your home this Saturday & Sunday at junctionholidaymarket.ca