Patrick Smith
One of the most wonderful things about this ever changing world of ours is that it is full of surprises. It is hard to imagine how boring life would be in a state of affairs where everything, everyday, all the time, is either constant, reliable or completely predictable.
There is, however, a wonderful and ironic twist to this. As thinking, developing, ambitious and evolving creatures, we spend endless amounts of time to the contrary, evading spontaneity in a constant attempt to predict the future. This is a human specialty.
One of the social tools that helps us with this task of forecasting fact (tongue firmly in cheek) is the institution of the media. Press releases become articles of journalistic interpretation which then filter through the vast and great frontier that we all know now as social networking. The buzz and tweet and sometimes fierce debate of these conversations regarding socio-economics, political planning (and plotting), analysis of national and international agreements, invention and disaster are all feverishly discussed. Opinions are formed and swayed. Alliances are made and enemies loathed. One outcome of this open debate and freedom of opinion is that almost everyone has become a virtual expert on every subject, including real estate.
The value and direction of real estate is clearly a popular, important and well discussed economic indicator both in mainstream media and social network forums. As owners, investors, renters, buyers and sellers who need both a roof over our heads and a place to do business, we are all major stakeholders. Recently, the Bank of Canada offered a press release which received much attention and sadly, very skewed public interpretation.
Some important things were said by the Bank of Canada, but were apparently not sensationalist enough to make headlines, such as: “Low interest rates and steady income growth have helped keep the household debt-to-income ratio broadly stable and near a historical high. The anticipated soft landing in the housing market has not yet materialized, in part because mortgage rates have declined in the context of falling global bond yields and also because of regional factors affecting housing demand and supply.” The media interpreted this information for public consumption, with their own individual take.
As a realtor, I found the social conversations stimulated by this to be challenging. Over 28 years of work in real estate, I have closely witnessed and carefully assessed the value fluctuation of property over time. As the owner of a number of hobby properties in Canada and the U.S., for many years I have enjoyed recreating them according to the market conditions of the time: buy, sell, hold, renovate, repeat. Here are some observations that come from that experience and not from the news or hashtag chats:
- Property value grows in long, relatively consistent cycles, so with some good advice, it is fairly easy to manage.
- In real estate, we do not see the sudden and immediate changes in pricing like in stock trading. The TSX or the Dow can be immediately affected by sudden bursts of news and the frenzied behavior that follows, but it takes a lot more than an hour to pack the contents of your house and get it listed on the market as a reaction to disturbing news.
- Thanks to our sound central banking system and chartered lending institutions in conjunction with the Canadian Real Estate Association (CREA) and strict provincially regulated bodies of Government that oversee the business of trading property, Canada is exemplary. Figuratively speaking, the big, slow, powerful push in the trading of property moves it along, climbing hills, crossing plateaus and only twice in my memory, dipping into valleys. Rarely or never do we race a mad dash.
The difference in how an individual or corporation decides to use property should be very goal specific. Whether for personal or investment portfolio use, or both, there needs to be a plan. There is no shame in consulting an expert. I usually ask people to ponder a few initial simple guidelines:
- Assess your needs, motivation and expectations and define them for the short and longer term.
- Have firm agreements with those you may co-invest with so you do not get stuck in an untimely situation or conflict of goals.
- Create a sound and comfortable financial plan.
- Learn more. Like our neighbors to the south, Canadian real estate is no longer a lump sum of activity. Our national economics are diverse and regionally specific, which is one reason to not generalize. It helps to have even a light understanding of demographics and of your City Official Plan regarding areas in consideration for purchase. These things affect the value of your personal home as much as they do for the purchase for pure investment and income stream.
So what’s happening now in real estate? Toronto housing starts were up this year 7.4%. Ottawa, on the other hand, is down 3 points. So, are some housing markets in this country over inflated? Answer: possibly yes. In Ottawa, average time on the market increased from 38 days in 2011 to 51 days in 2014. While property value typically holds steady during periods of volatility in Ottawa, we are currently seeing amazing opportunities to a shrewd purchaser in a simmering market.
Has the Ottawa market been over inflated over the past two years? Answer: probably no. History is our only real sound measure of events. I recall, in 1998, dragging friends out to purchase property in the Byward Market on anticipation of market cycle change with the added value of the city’s interest in revitalization. By 2000–2004 we experienced huge percentage increases in value across the board just after a time when all public confidence in any recovery was ubiquitous: http://www.ottawaliveshere.com/sales-statistics/
The only real truth is that there is no crystal ball. Social media is fun and stimulating, but when it comes to a major endeavour or financial goal, it is important to find objective expertise and genuine guidance. How does a person decide to invest? Is it time, land, finance or leisure? It is perfectly individual.
We all should spend healthy amounts of time focusing on the future, and sometimes every one of us ends up sadly looking back in regret. So if you find yourself considering real estate, talk to your friends, consult a professional and do your due diligence. With all these things considered and homework complete you will never have to look back and ask yourself “so, why didn’t I buy in 2015?”