Why Canadian House Prices Will Keep Rising

Today I'm excited to take some time to look at what's been going on here in the local real estate market, so here in London, Ontario. We're also gonna take a look at what's been happening in the Canadian real estate market and how that stacks up to what we thought was gonna happen when COVID kind of kicked off here in Canada, and where I think we might be heading in the future as well.

So let's dive into the numbers

We'll look at London first. And when I talk about these numbers, I'm talking about August of this year, so 2020 compared to August of last year. We've seen the actual number of home sales increased by 13% we've actually seen the price go up by a whopping 22%.

Now when we look at Canada as a whole, we've seen those numbers, the home sales go up by 33%, which is huge, and our average sales price is up by 18 1/2%. So we look at those numbers and some of those numbers are huge as far as growth goes and when we look back at some of the predictions that were made, if you remember Evan Siddall from CMHC came out and said that he expected a decrease in home values of 9 to 18%. If you search on YouTube, you can see that there's lots of people that are gonna tell you that the real estate market is gonna crash. So why hasn't it? Let's take a look at why maybe these numbers are the way that they are.

Back in March, COVID hit and everything shut down, the economy shutdown, the government basically told people to stay home, some people were laid off or couldn't work. There was predictions that we are gonna see a huge drop in the value of homes across the country and who knows maybe that will still happen, but it hasn't yet. So there's a few factors that I think have played a big role in stimulating the real estate market across the country and particularly here in London, as well.

As soon as COVID hit and people were beginning to be laid off, the government jumped in and provided $146 billion worth of stimulus into the Canadian economy, predicting that they would kind of play that out for about three months to try and stimulate the economy. On top of that, we've given people the opportunity to defer mortgages, we've also kept interest rates at historically low levels, and we'll probably continue to do so. Some people get out, they begin to feel comfortable and they decide they want to actually make that move that they were thinking about, but they realize that there's not that many houses on the market and it does come back to the supply and demand. So we've got very, very low supply and demand is starting to ramp up. People are realizing that money is cheap and that they can go and possibly buy the house that they wanted to before, and they're feeling confident enough that things are going to normal. And this is how we've gotten to this spot, where we are, where we see a record number of sales taking place and record sales prices across the country.

So let's get to the exciting part

Let's talk about where we think things are going to go in the future, and when I say the future, I'm talking about the next few years. The Canadian government has made it very, very clear that they're gonna keep interest rates basically pinned to the floor. If you read between the lines, they are very okay with Canadians continuing to borrow money, to live their life and do the things that they need to do. So as we head into the future, I think what we're gonna begin to see is we're gonna begin to see inflation happen. The Canadian government made it very clear that they would rather see an inflationary environment versus a deflationary environment. And for those reasons and the fiscal and monetary policies that they have in place, I think we'll continue to see most asset classes continue to grow in value, particularly real estate.

The only way we would really see that change is if all of a sudden there's a glut of supply on the market. So it would take people losing their jobs on mass and having to put their homes up for sale, or having them repossessed by the bank that then puts them up for sale, where all of a sudden buyers have tons and tons of options and sellers begin to have to compete on price in order to get their homes sold. But we are so far away from that environment right now and I think we're gonna be really far away from that environment for some time, for years. I think that interest rates are gonna be very low, I think the government's gonna continue to try and support people who have lost their jobs due to COVID all out of fear of running into a deflationary environment.

So who stands to benefit?

The people that stand to benefit are the ones that already own homes. They're gonna watch their homes go up in value, they can then take that value in their home and either upgrade their house, especially while interest rates are low.

If you own multiple properties like I do, then I can take them and re-leverage them and go and buy more rental properties.

The people that are really gonna struggle during this environment…

are the ones that don't have anything in an asset class. They don't have any sort of investment, they don't own any sort of real estate, it is becoming tougher and tougher for first time home buyers to get into their first home, as they watch home values grow by double digits percentage-wise, month over month or year over year, while their income's not growing at that pace either. It is just getting tougher and tougher for them.

Some of my final thoughts on this

This is stuff that I'm personally thinking about for myself, for anybody that does own a home or anybody that owns rental properties, or is thinking about getting into them, I honestly do think that this could be a great time, we've had the government sort of promise us that they're gonna keep interest rates historically low, and the value of your home is increasing rapidly, so if you're considering upgrading your home, now maybe a good time to make that stretch if you've been considering it, I don't want you to make any financially unsound decisions, or if you're thinking about getting into rental properties, it's a great time to do that as well, because the best time to buy an investment property was like, yesterday, because those things are appreciating so quickly and I think if you get into the market now you've got a few good years ahead of you, of watching that asset increase.

So that's it, that's kind of where I think things are going to go in the future. If you have any questions or have any thoughts or comments on this, I would love to see them.

Questions?