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<\/p>\nby GroupeSarroino<\/p>\n
\u201cPrices can\u2019t stay like this forever.\u201d \u201cProperty values are too high.\u201d \u201cNo way will prices keep going up.\u201d \u201cHome prices are going to go down eventually.\u201d \u201cThis is a bubble; it\u2019s going to crash.\u201d<\/p>\n
You have probably heard all those statements when it comes to talking about real estate. However, are any of them true? If only we had a crystal ball or a time machine to travel to the future. Unfortunately, we don\u2019t have either. All we have are lessons from the past.<\/p>\n
But first, what is a real estate \u201cbubble\u201d?<\/p>\n
A bubble only occurs when a seller sells their home for less than what they paid for it or less than what their neighbors have paid for their homes. Not to mention, the market will have to have more supply than demand. If social structures and government regulations are strong and support the homeowner during an economic crash, mass flooding of the market and recklessly low prices won\u2019t happen.<\/p>\n
In recent years, we saw our neighbors to the South suffer an economic meltdown not seen by living generations. An economic crash so severe we saw fortune 500 companies grovelling to their federal government begging for money. How did this relate to the housing market? Mass unemployment, large lay offs, loss of income, soaring interest rates, investment portfolios devalued, and a stock market crash. Their real estate market prior to its destruction was on the rise. New construction starts were peaking, banks were giving subprime interest rates, and homes in and around major cities were selling for record highs. Without going into detail, the real estate market began to crash or rather put, \u201cthe bubble\u201d popped when homeowners started to default on their mortgage payments. In an effort to avoid going bankrupt or lose their home, the owner would list the home for less than their neighbor, to not be outdone, the neighbor would then try and undermine that neighbor and so on and so forth, until homes were being sold for less than the mortgage registered on the property.<\/p>\n
Let\u2019s try and answer the big question: Is this a real estate bubble and when, if at all, will it pop?<\/p>\n
Have home prices steadily increased over the last 5 years? Yes. Home prices on average on the island of Montreal have increased a modest 3-5% year over year up until 2018-2019-2020, when home prices jumped 8-10% and now an additional 15% increase. On average, in 2015, a home in the West Island was sold for $405,563. Today, almost 5 years later, the same home is sold for 53.9% more at $624, 157<\/p>\n
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Here in Canada, our banking system is heavily regulated. In February and September of 2017, the Federal government introduced further reforms on mortgage rules for buyers. Eligibility, criteria, and a new and more comprehensive stress tests were put into place. At the time, these safeguards had negative effects on the market. Buying power decreased, sale prices stayed low, and some buyers were not qualifying for a mortgage at all. What this did was create a stronger buyer pool with better qualified buyers were entering the market. Buyers with more job security, buyers that were not over stretching their budget, and buyers that could afford higher interest rates should the banks increase them. Buyers today are in a better position than those 5 years ago. This in all likely hood has created a stronger, more stable housing market. The results are higher prices and much needed growth to a once undervalued market.<\/p>\n
For decades, the home prices in Montreal have been stagnant and undervalued. The fact that 46% of the Quebec population chose to rent a home rather than own their home is a factor, the growth of other Canadian markets have lead to an exodus of 80,000 Quebecers a year to these cities is taken into account, and of course politics plays a roll in it as well.<\/p>\n
The prices we are seeing today are much needed. Our estimates are that we will see prices begin to plateau in the up coming year, establishing a new average home price and a strong market. Prices will stabilize and increase steadily like in the past years at a modest 3-5%.<\/p>\n
The only \u201cbubbles\u201d we will see in Montreal are those in the quarter spectacle when our street performers return.<\/p>\n