One of the hottest topics of conversation is the red-hot housing market. Anyone who has been seriously shopping for a new home has no doubt been running into challenges with having their offers accepted. The more desirable the home, the more interest there will be in the property, and the more offers you’ll need to contend with.

The housing market will eventually settle down, but it’s not showing any signs of easing just yet. The hotter the market, the faster housing prices will rise. The current pace is not sustainable and eventually it will correct. This is not just happening in the GTA. It’s happening across Canada, and across the US as well. We faced the same situation in 2014 – 2017 where it was impossible to purchase if your offer was conditional. Listing price meant nothing. The only way to have your offer was accepted was to put in a condition free offer that was significantly over the asking price. Sound familiar?

Home prices then corrected in late spring 2017, dropping approximately 20%. The GTA condo market didn’t see the same correction. While demand slowed, it remained strong and condo values continued to rise, not letting up until mid-2020.

 

Why Did The Housing Market Correct In 2017?

 The housing market correction in 2017 was triggered by two major news stories. The first was about one of Canada’s largest mortgage lenders facing serious financial issues, Home Capital Corp. The name may not sound familiar, as they don’t spend millions of dollars in advertising, but they are a huge lender. Their financial issues were not tied to the market however, nor were they tied to their clients defaulting on their mortgages. It was due to their handling of fraudulent documents a couple years before, which led to them ending relationships with 45 unscrupulous mortgage brokers. Their stock plunged more than 75% over the next month, leaving the future of the company uncertain. They have since rebounded and are now thriving once again.

At the same time we learned about the Home Capital crisis, a new foreign buyers tax was introduced. This was also perceived as a thread to the housing market. Both news segments were announced in April 2017, which led to an immediate drop in demand. It was as if someone flicked a switch.

The 2017 housing correction didn’t last long, and the market become hot again the following year.

Will this happen again?

The quick answer is yes. The current pace of the housing market is not sustainable, and it will eventually correct.  It’s not a matter of whether or not it will happen.

It WILL.

It’s just a matter of when, and by how much. Will we see a crash? Or just be a dip. Or will it simply level off?

If I had to guess, I would say we’ll see a correction sometime in 2022. This is just speculation and anything can happen. For all we know, it could continue at this pace for years. No one knows for sure.

If the market drops, which I think is the likely scenario, then it will eventually rebound. It always does.

 

Should You Wait To Purchase A New Home?

 The answer to this question depends on why you’re looking to purchase a new home in the first place. Are you looking at buying it for an investment with the intention of selling within a year or two?  Or are you looking to purchase to have a home for you and your family?

If you are buying for investment with the intention of selling in the near future, then purchasing now could be risky.

If you’re looking for a place to live, and you think the property will suit your needs for at least the next five years, then I would not let a potential market correction stop you from purchasing.

Why do I say this?

It’s because this is your home. A place for you and your family to live. The reason for purchasing is not to make a quick profit, so it shouldn’t matter if the market corrects or not. Don’t get me wrong, no one wants to overpay for a home, and everyone wants to try to get in at the perfect time. But there is no way of knowing when this will be. You could wait and it could be years before we see a correction, which would mean that you could end up paying significantly more than today’s prices.

But what happens if you purchase now and values drop next year?

The only way you would lose is if you wanted to sell during this time. If you don’t need to sell, then you haven’t lost anything. The market will eventually rebound.  It always does.

 

Why Is The Housing Market So Hot?

In spring of 2020, I wrote a blog questioning whether you Should You Wait To Purchase A New Home. I suggested that there was a short window to buy before the market started soaring.  Many were waiting on the sidelines waiting to see what was going to happen with the housing market due to the pandemic. This resulted in pent up demand that would send the housing market rocketing upwards, which is what led us to where we are today. This will eventually subside.

 

Be Careful What News You Choose To Follow

 I’ve been hearing doom and gloomers predicting a major real estate crash in Canada since 2006. Anyone who listed to them and sat on the sidelines waiting for this big crash would still be waiting. 2006 was the year I bought my first home. A 1,500 square foot semi in Milton, Ontario. Purchase price $266,000. Glad I didn’t listen. The market value of that same home  would be roughly $1 million today.

 

 

Please leave any questions or comments below. I’d love to hear from you!