As we near the end of the first quarter of 2021, the big question on the minds of including my own is, how long will the current real estate market boom last?
In a prior post titled “Key Factors Impacting Today’s Strong Real Estate Demand” I touched on some of the historic data as to how the local real estate market has performed over the past 10 or so years since 2012. Along with increased sales activity, the median residential sale price has risen steadily from just over $300,000 in 2012 to over $700,000 thus far in 2021. Much of this increase has been driven by significantly higher sales of residential properties priced over $1 million. In 2020 residential property sales over $1 million totalled 353 units up from 127 in 2019, an increase of 178%.
The inventory of resale homes listed for sale on the local MLS® System has for the most part declined during this 10 year period see chart below. As a result, one is that properties are for the most part, selling for much closer to their listed selling prices and in many cases over their respective asking prices because of attracting multiple offers.
Prior to entering real estate in 2001, I spend over 25 years working for American based companies both in Canada as well as in the U.S. In 1992 I moved from Collingwood to the Chicago area where I lived until the end of 1995 before moving back to Canada. Selling my Collingwood area home in 1992 proved to be a real challenge. The country was in the midst of a recession and the Canadian dollar was about 25% less than the U.S. dollar. I listed my home at the then current market value of $299,000. Despite several price reductions the house remained unsold a year later and I was commuting to Chicago weekly. Pricing didn’t matter as there were simply no buyers. Finally at the direction of my employer, I blew the house off at $160,000 which was less than what I had paid five years earlier. The five year mortgage rate at the time was about 9% which we thought was a bargain given that 10 years earlier they were 16% to 19%. Fortunately for me at the time, my company covered the loss on my house and made up the exchange rate difference on the Canadian money I moved into the U.S.
As per the my comment above the median residential house price in our local market has increased steadily since 2012 averaging out at about 10% per year. Such is not typically the case in the U.S. During my 25 plus years of working for U.S. based companies, many of my U.S. colleagues got moved around as well. Many of them often told me that if they got moved somewhere and stayed for 3 to 5 years, they were happy just to sell their home for what they paid. For me that was hard to fathom. While I could never understand and or believe that, I too found that to somewhat be the case.
I purchased my home in a suburb of Chicago for about $280,000. It was a beautiful house less than two years old with 4 bedrooms. 2.5 baths, a den plus a large lot. I lived in the house for four years, finished the basement and did some exterior landscaping etc. This is a picture of the house I recently pulled off the Internet via Google.
When I sold the house in late 1995 it sold for a price in the mid $300,000 range so during my ownership it increased in value around 20% so somewhere roughly 7% a year. The U.S. inflation rate at that time was running at just under 3% per year so the house appreciated in value more than just the inflation rate based largely on the improvements I made in the property as well.
Over the years since I sold I have often checked out of curiosity house values in my old Chicago subdivision and in particular how my former home’s value had changed. The U.S. housing market crashed in 2007 and remained so through 2008 and 2009. During that time my house was actually worth less than what I sold it for which was somewhat shocking nonetheless that can happen in real estate as the market fluctuates up and down.
Given the current state of house prices in southern Georgian Bay and other parts of Canada, I was again curious as to what had taken place in recent years regarding my former Chicago home. Checking a couple of online real estate websites, the current value of the home is estimated to me around $455,000 based on recent sales in the area. Essentially the house has appreciated in value around $100,000 to $120,000 over the past 26 years so about 35%. By comparison, house prices have in locations like the Greater Toronto Area (GTA) and here locally have in some cases doubled or more in the past 10 or so years.
Obviously there is a significant difference between the Canadian and U.S. housing market overall and further, conditions vary from province to province and state to state. Currently, Sotheby’s International in the U.S. has reported seeing a shift in the luxury home market with luxury buyers migrating to states that have no personal income tax with Florida being one and who can blame them. While U.S. home owners benefit from being able to deduct their mortgage interest for income tax purposes, that is offset by the fact that they get hit with capital gains tax when they sell something that we as Canadians don’t and perhaps take for granted. In many cases U.S. home owners often pay significantly higher property taxes. Even back in 1995 my annual property taxes on my home were $6,000 on a $350,000 house!
As I stated at the start of this post, no one know for sure where Canadian housing prices are going to go or how long the robust market conditions will last. Using the word “burst” maybe harsh but I believe we are overdue for at correction in our market when remains to the big question. Some high prices have and are currently being paid for homes in the GTA and right here in the southern Georgian Bay Area. As a Market Value Appraiser-Residential I believe that some have bought more house than they need and or can realistically afford. Never in our lifetime have we been through a global pandemic. How the global overall economy and the real estate market responds remains to be seen but I think it’s time for everyone to use some caution.
As a REALTOR®, I have never been one to play games. We need to get back to the basics of selling homes and other properties in a manner that is equitable for both sellers and buyers. Delaying offers and under pricing properties to attract multiple offers while a benefit to sellers creates a disadvantage to buyers who let’s face it are the other half of every transaction. Perhaps our neighhours to the south are smarter? Modest increases in housing prices benefits buyers of all types, especially those that are trying to get into the market as first time home buyers and that’s where my own two kids are right now one of whom lives in Hawaii.