As I sat down to write this article for February, I was trying to come up with some descriptive wording as to what we are witnessing in the local real estate market right now; “wild wild west” and “a runaway train hurtling down the track” were a few of the words that came to mind.
January home sales continued where December left off, with limited inventory and even higher pricing. How high can prices continue to go? We have been asking ourselves that for a while now. Some have been predicting a downward correction for months and months; I suppose if you keep on predicting a price correction, eventually you may be right. But if you told buyers to sit on the sidelines 12 months ago to wait until prices decreased, the reality is you probably ensured they ended up paying 30% more for a home—if they could now afford to get into the housing market at all.
So the question is … is this time different? As someone who has sold the most homes in Centre Wellington in the last two years, even I am increasingly concerned as to what may lie ahead. One barometer I’ve looked at is Fergus subdivision home pricing. In the last 60 days, we have seen townhomes that were selling in the $500’s two years ago now selling in the $800’s, and mid-size detached homes which sold in the $600’s now selling in the $900’s. Larger subdivision homes selling over $1 million is now a common occurrence in our area.
We have been using the word unsustainable for a while now, but if we have not yet crossed that line, we may be getting awfully close. If first-time buyers cannot afford entry-level homes, they will not be buying the homes of sellers who want to move up into a larger property. Then there won’t be buyers for people wanting to sell their home and downsize as they hit retirement years. And just like that, the real estate market comes to a screeching halt, and prices adjust. How much? That’s the question.
Increasing interest rates will add to the unpredictability of the market moving forward.
One of the issues is there are so few sales right now; it only takes one high sale result to set the stage for the next sale price being even higher. In other words, I’m concerned that we may have a false sense of market values right now based on limited data (i.e., too few comparative sales), which could result in the increased probability of a future price correction of a magnitude we are not expecting.
The other issue is now seller expectations. “Well, my neighbour’s place sold for that, so mine must be worth more” is a refrain we increasingly hear. This may be a self-fulfilling prophecy that may result in an unexpected outcome in the year ahead.
And thus, this whole housing discussion goes back full circle. The reason we are in the current housing dilemma is due to insufficient homes available for sale. Not enough new homes being built in a timely manner. If enough homes come on the market, it is possible we will have a soft landing… a gradual softening of prices. But given the fact we are seeing 10, 12, 18 offers on a number of properties right now, it seems the supply demand imbalance will continue in the short term, and we will continue to witness how much higher competing buyers are willing to push up pricing further. On one of our recent listings, we had 18 offers, 16 of them from GTA realtors. So outside forces are certainly impacting our local market.
My recommendation to sellers continues to be list early this year (if possible) for the best result. While you may have started to think I was turning into Mr. Doomsday above, despite my concerns, I believe real estate in Centre Wellington and area will continue to do well overall throughout 2022, given population growth in our area and our desirable location in general. In other words, if you are not in a position to sell until later this year, I believe it will still be a seller’s market, so don’t stress.
I will say some homes will do better compared to other homes as the year unfolds. While it seems all homes are selling for record pricing right now given the lack of inventory, as inventory levels improve, basic real estate principles like location, location, location, updates, and good maintenance will make a difference. But for now, until the supply demand imbalance changes or other factors like multiple interest rate hikes take effect, upward pressure on prices will continue.
One specific recommendation—if you have a condo you are wanting to sell (especially if it’s priced under $600,000), now is definitely the time. Largely due to affordability factors (condos vs. house pricing), we are seeing lots of demand and record pricing being paid for condos right now.
Of course, all market segments continue to do well. We will see further record pricing on country properties in 2022. Another prediction: In 2021, the $2 million in-town price barrier was broken, and I’m predicting an in-town sale of $3 million by the time 2022 closes out. While first-time buyers struggle to get into the market, those with the resources will continue to have the ability to spend on higher-end homes.
A proper marketing and pricing strategy is key for sellers to take advantage of the current market, so if you are thinking of selling, feel free to reach out to me anytime at 519-766-3716. Likewise, if you are a buyer, you will want a trusted realtor willing to give you honest advice for you to navigate through this challenging market. I, along with my team, are here to help. As we are very active on the listing side, we have our finger firmly on the pulse of the market, which is helpful for our buyer clients.
It will certainly be interesting to see how the local real estate market evolves over the next few months.
Until next month, take care.
George
