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September 2020 Kitchener-Waterloo Real Estate Report

When we look back 6 to 7 months and consider our thoughts at that time, and then compare them to what has happened in the real estate market, I think it is common thinking that nobody could have predicted this. What has transpired in the last 4 months alone is beyond impressive. The average price of all real estate sold in Kitchener-Waterloo over the last 4 months has jumped about $70,000: appreciation over 12% in just 4 months.

Real Estate Market Report

Even more astounding is the $111,000 average price increase for single detached homes in Kitchener-Waterloo: almost a 17% increase in 4 months!

 

Real Estate Market

 

Something has happened here. A major shift with its roots in contradiction-where fear is making people do things in an environment where waiting for things to shake out might be prudent.  Making huge decisions with loads of money during a pandemic, where unemployment and the economic environment is very concerning. Government debt with unknown consequences. Political divide and movement towards authoritarian leadership globally. The demise of small and medium sized business. And real estate prices are breaking records. How and why is this happening?

There are a lot of reasons why real estate is smoking hot:

  1. Mortgage interest rates below 2% (free money)
  2. Fear of living in densely populated environments like big cities and in apartments
  3. More resources being directed towards homes for reasons associated with work, schooling, staycations, bringing extended family members into the home, etc.
  4. Fear of missing out on homes where prices may just keep rising and rising
  5. Investment in real estate because everything else looks super risky
  6. No fear at all – the Government will just bail us out
  7. Boredom or COVID-19 fatigue – let’s just move; what else is there to do?
  8. Mandates by Central banks to keep interest rates low and to let inflation run hot

Given historical moves in real estate prices, let’s be honest: it’s tough to make a bad real estate purchase. So, if you have a longer-term timeframe, then trying to time a purchase is less relevant. Blocking out the noise is not a terrible idea: close your eyes and pull the trigger.

Here are a few graphs that take a look at the point in Kitchener-Waterloo where our pricing trajectory changed. We were all of a sudden on the map:

Real Estate Market Report

 

When you look at the graph it’s astounding how consistent the move in price is up until mid-2016. We then see that the rodeo has started and even though prices still move in a predictable direction, the average price swings can be significant. If we look at what prices have done in the last 4 months and how they have overshot what looked like an upper bound, we may want to be cautious. Like the second half of 2017, we could see a significant move in the opposite direction after an overshoot of a significant price channel. Now, when will that happen? No idea. Prices could continue to run higher and higher. Who really knows? But it is a point to keep in mind.

I wanted to quickly touch on the moves in real estate prices compared to average Canadian Incomes.

Since 2008 we have seen the average home price in Kitchener-Waterloo go from $265,339 to $637,691.                           UP 140%.

Since 2008 we have seen the average price of a single detached in Kitchener-Waterloo go from $306,125 to $768,762. UP 151%

The average Canadian hourly wage has gone from $20 in 2008 to $27 in 2020. UP 35%.

Real Estate Market Report

The stark divergence between home prices and the average wage is likely one of the main contributors to the fear of missing out OR ever being able to afford a home by first time OR younger buyers. Older generations have always believed in home ownership and it’s paid huge dividends. I think those generations are fearful that their kids and their grandchildren won’t be able to own a home. They are pushing their kids to buy homes and/or are helping them with the purchase. There is a huge amount of wealth tied up in the Baby Boomer generation that is finding its way to the younger generations – perhaps this is what is driving sales while wages are slow to increase. In my opinion, the mindset of being a homeowner along with the movement of wealth and ridiculously low interest rates will continue to power home prices in the long run.

Here’s what happened in September:

758 Residential properties sold in September. This is a record number of homes and represents a 41.6% increase over September last year and 8% higher than August 2020.

In addition, sales are currently sitting 2.6% higher than at the same time last year – we have more than made up for the down time early this year.

Single detached homes sold:       431        UP 28.6%

Apartment condos sold:               93           UP 127%

Townhouse sold:                            178        UP 43.5%

Semi-detached homes sold:        54           UP 59%

 

The average sale price of all real estate in Kitchener-Waterloo for September 2020: $637,691 UP 17.5%

Average prices:

Single detached homes:                $768,762             UP 25%

Apartment condos:                        $390,690             UP 13%

Townhouses:                                    $476,636             UP 8.7%

Semi-detached homes:                  $544,874             UP 16.5%

 

Even though we saw 929 new listings, an increase of 13% vs last September we still only have one month of home supply available in Kitchener-Waterloo.

There is no doubt about it. The market is hot. Do your research if you are looking to buy or sell. There are reasons to buy and there are reasons to wait. And there is as much risk in waiting as there is in buying now. The same is true for selling – it could be the top of the market and you could get a fantastic price-you could also look back in 4 months and the market is up another 15%. The key is-make your decision based on your current situation and what is comfortable, and like the graph shows-with a longer timeframe for your decision, it’s tough to go wrong in real estate.