Understanding Real Estate and Investment Cycles

By: Lindsay Smith

Understanding Real Estate and Investment Cycles

Tags: real estate, buyselllovedurham, oshawa real estate, durham region, market trends, real estate pricing, neighbourhood, whitby real estate, house near me for sale, clarington real estate, treb, mls

We are 3 weeks into the 2nd quarter and the “fortune tellers,” meaning, the people who sit around tables in coffee shops, chatting in a bar over a beer or even milling about after church service are surprised that their predictions are not coming true. You might be curious what predictions… the ones predicting the collapse of the housing market. That values will drop, (the favourite word is “corrected”) we will see a flood of homes will be sitting on the market not selling and the Buyers who have been locked out of the market will happily jump in and become homeowners. The two shocks they are experiencing are that the market stopped dropping in value and that Buyers are again bidding on homes. This is resulting in increasing home prices.

Since January 1st, prices for detached homes in Oshawa have increased by $80,000! Clarington prices have jumped by $171,000 and Whitby prices have declined by $32,000. Like the end of the movie “The Crying Game” I am guessing the nay-sayers are saying, “I never saw that coming.”

Real Estate, Stocks and continuing education are all investments whereby certainty is the foundation of the investment strategy. When there is certainty in Real Estate, people invest feeling assured that their investment will increase in value. This is the same with the Stock Market and with education; a student invests their time learning things that will help with a future career. Many investments have “certainty” as their foundation.

When the Bank of Canada started to increase rates in 2022, the result was people lost confidence in what prior to that was a stable Real Estate market. Buyers stopped buying and Sellers who had a need to sell, reduced their prices to find a willing Buyer. The result was that values dropped. I remember being on a Zoom call within the first few months of Covid and one of the people on the call shared that he had just sold off most of his stock portfolio as he watched the stock market drop. He sold when the Dow Jones was at 22,000 and within 3 months the market had increased about 20%. Making an investment decision based on emotions ended up costing him hundreds of thousands of dollars.

There is no question that all investment markets cycle, and what we are seeing are the curves of a normal cycle, one that was triggered by increased mortgage rates. But, like all cycles, homes being investments, will cycle from high values to lower values, and over time will continue to increase. The saying, “it’s not timing the market, it’s about time in the market” can never be better illustrated than where we are today. When you look at Real Estate through the eyes of an investor is very easy to understand market swings. Investors look at time in the market and holding investments long term. Observing short-term investors, like day traders, the risks they accept are high, and theirs hopes are that some of the short-term investments pay off balancing out the ones that did not work. Over the past 10 years, the average detached home in Durham Region has increased by over 260%. If you compare this increase to RBC stock, their stock has increased by about 100% during the same period. The true value of Real Estate is in buying and holding.

Heading into the 2nd quarter in Durham Region, we will most likely see the values continuing to escalate, the number of homes for sale stays low and bidding contests will become a constant.

If you are considering buying a home. My suggestion is to do so soon. The mortgage rates in the USA are poised to increase which may mean ours will follow suit, meaning that holding off will cost you in what you pay for a property and what it costs to carry.

I overheard an agent mention that a client had sold their home last February, which was at the top of the market and was waiting to buy once the values bottomed out. Since then, they have been renting a home. This is a classic example of someone who got lucky by selling at the top of a cycle. The confidence coming from this stroke of luck leaves the impression that the Seller understands the market. Alas, the market bottomed out late last summer and they will end up paying more for a home by waiting.

No one has a crystal ball, however, the people who are Buyers looking for a long-term investment will be rewarded. This is a cycle that has been repeated many times over my 4 decades of selling Real Estate in the Durham Region.

If you are considering buying or selling a home, I can offer almost 40 years of experience, not only in how to sell and buy at the best prices, but as a local agent can market homes in the areas I know will attract the most Buyers. I can be reached at lindsay@buyselllove.ca or 905-743-5555

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