Eric | Oct. 20, 2017
We saw the average home price in KW tick up again after 4 months of decline. Below we can see the April average price peak at $512,656 and then move lower. Coincidence? I don’t think so. The foreign investment tax came into play on April 21st – proof is in the fact that 20 homes over $1,000,000 were sold in April whereas September only saw 5 homes sold in that price category.
Foreign investors were gobbling up those higher priced homes before the tax. This huge decrease in sales at this price point manipulates the average sale price because it has such a big weighting. This only indicates that the underlying fundamentals are solid. The “April Peak” at the lower price points didn’t spike as much as the overall average price (a weighted average chart using different price brackets is something I should do – maybe next month!)
By taking a look at the chart below, we see resistance or a bottoming out of prices right in line with the new trajectory that started at the beginning of 2016. If we see the average price move below $440,000 over the next couple of months, we could be in for some pain as the price moves below that resistance line. There are new mortgage rules being introduced early next year. This could see all mortgages, even uninsured ones (no CMHC), tested at the Bank of Canada posted rate. This move may not affect very many buyers, but it does create more uncertainty which could push the average home price down.
The average of all residential properties sold last month increased 12% to $455,079 compared to September 2016.
SEPTEMBER 2017 KW HOME PRICE AVERAGES VS SEPTEMBER 2016:
Detached homes – $513,873 (up 10%)
Apartment-style condominium – $261,337 (up 6%)
Townhomes – $359,448 (up 20.9%)
Semi-detached – $372,226 (up 19%)
KW HOME SALES IN SEPTEMBER:
285 detached homes (down 14.2%)
105 condominium units (down 19.2%)
38 semi-detached homes (up 22.6%)
37 freehold townhouses (up 12.1%)
The average days on market in September was 26, compared to 28 days a year ago.
As Canadians, we all embrace the security that tough mortgage rules afford us – none of us want or will benefit from a housing bubble that bursts. This thinking is one of the reasons why Canada’s default rate on mortgages is about 0.35% (about a 1/3 of a percent). The small short-term pain that might be felt by a few buyers is definitely worth the long term prosperity that we all benefit from.
Also, homes are necessary for survival – they have utility, they aren’t a fad. Waterloo Region’s population has increased at about 1.53% per year. This equates to about 8,600 more people needing a place to live every year – as the population of Waterloo Region increases so does demand for homes.
Thinking long term about home ownership and building equity in an asset over time is a solid strategy. Market stability and increased demand will mean that your investment in a home is key to building wealth.