It’s the topic that everyone loves talking about- the housing market. Whether it’s with family, friends or co-workers, it has almost become as Canadian as discussing the weather. The Guelph housing market has taken us on a wild ride over the past year and depending on what data you look at, the story can vary dramatically. Is it time to panic?
In April 2017, the Guelph market had an extremely low supply of houses. Measured in Months of Inventory (MOI), the Guelph market had under one month’s supply which is a dangerously low number. Essentially, it means based on sales trends, the entire housing stock in Guelph could be sold in less than a month. Many speculate that GTA buyers were suddenly cashing in and moving to a cheaper market like Guelph and pocketing a big profit. Although there are no definitive stats measuring out of town buyers, my data indicates that over 30% of buyers in Spring 2017 came from out of town buyers. As a result, housing prices soared as there was incredible demand and very little supply. It forced builders to increase their developments at a rapid pace in the south and east sides of Guelph. At the peak of April 2017, 78% of houses sold above their asking price. For some perspective, only 29% sold over asking in April 2018.
But consider the other implications of an extremely tight supply: buyers are forced to purchase a new house without ensuring that they meet the bank criteria to qualify for a mortgage. In some cases, if a buyer bought in late Spring and took possession late Summer, they may have already lost value on the home. What they paid for it was not what the bank valued it at the time of closing (in this case the buyer would need to make up the difference). Or consider Guelph home inspectors who had a dramatic loss of business in Q1 as no one was getting an inspection in order to remain competitive for a house. Mike Heeley, owner of Heeley Home Inspections estimates his first quarter 2017 sales declined almost 40% year over year before picking up again in the fall.*
The government stepped in with their Fair Housing Plan in April 2017, designed to table some discussion points around housing supply, demand and processes. Topics include rental housing, real estate investment processes and ensuring home buyers and sellers are better protected. Then in July 2017, after a 7 year status quo, the Government raised interest rates. Home owners started to lock in and stay where they were. This slowed the buying trend and by October 2017 inventory started to spike up to almost a 3 months supply. Interest rates have gone up two more times since then.
The real estate industry loves to compare year over year statistics. Sure, looking at 2017 vs 2018 you will notice a severe decline. But unless you bought in 2017 and plan to sell in 2018, this month over month view is irrelevant. Most Guelphites buy a home to live in it, with investment value in the back of their minds, but not a short-term priority. Over a two-year period, Guelph homes have increased 25% in average price and 36% over 3 years in average price. Those are impressive numbers that often get lost when reporting year over year sales. It’s no different than your long-term RRSP or stock portfolio for most people; you may look at the increase or decrease in value over a one year period, but it’s unlikely you’re going to cash out because of it.
As of May 2018, the market is becoming more of a balanced market. For buyers, this means that the traditional conditions of financing, inspection and sale of their own property are starting to reappear. Buyers are more likely to be able to negotiate a deal.
For sellers, the expectations of holding offers and far exceeding the asking price are diminishing. The average home in May 2018 was on the market 21 days, versus 13 in May 2017. Sellers now need to rely more heavily on their real estate agent to sell their house with a strong marketing and negotiation plan to ensure they receive fair market value for their home.
Overall, we are in a much healthier position in 2018 versus 2017. Although you may read dramatic year over year reports in the first five months of 2018, Guelph remains a strong place to invest in real estate over a longer timeframe.
*Source: 2015-2018 GDAR data, City of Guelph proper 18 measured neighbourhoods.