Dearest gentlemen, I believe that most of you who follow the real estate markets in North America are starting to hear the news that bidding wars are coming to an end, prices are starting to come down as more and more people begin to sell their properties, the interest rates are rising which means less people are willing to buy right now, preconstruction projects are slowly being cancelled or sold as unfinished... Is it just me, or is all of this a slow moving rug pull? Whatever the case may be, I am sure many of you have questions. Here are some questions that I have and, truth be told, sometimes an excellent question with no answer is better than a mediocre one with a good answer.
Without further ado, let us begin with the questioning (inquisition? haha)
I have recently heard that Paris, Ontario is the hottest new destination for more affordable preconstruction projects. I have been hearing a lot about small towns that are in the sphere of more notable urban hubs in Southern Ontario. My question is this. Given that cities like Brantford, in the sphere of which Paris is located, do not have a strong local economy, a thriving job market and salaries the likes of Peel and Halton regions that are closer to Toronto, who will be buying these properties and who will they resell them or rent them to ultimately when the time comes? Let me tell you why I believe that none of the default go to categories of people work out in this case.
- Foreigners: First, they no longer want to buy and hold properties for the yield as bonds of countries like Canada and USA are increasing their guaranteed yields. Second, the idea that these buyers will place their families there makes little sense as small towns typically do not have the infrastructure for newcomers the way that bigger places do. Third, they will quickly calculate that buy and rent out will not work that well as the average dual income family may find the property too expensive to rent; also, foreign buyers who reside abroad rely on rental agencies to manage the rental process and these agencies are found in urban hubs only.
- Remote workers: Well, a study from early in the pandemic done in USA (please Google for more info) has shown that only 33 percent of jobs in USA can be done remotely, some with major modifications on the employer's part. The stats for Canada might show even less as we lag in tech jobs that ostensibly make up a chunk of those 33 percent of US jobs. Now, will all of this preconstruction plus inventory just waiting to flood the market be enough, or maybe a little too much for the number of remote workers looking to buy (those who are not forced to come back to the office)?
- Locals: If the economy of a local urban hub has not been growing a lot, will the urban hub locals as well as people living in nearby towns be enough to absorb all the current and upcoming inventory by purchasing and renting?
My next category I am wondering about is inventory. In USA, there are currently estimated to be around 1 million homes that owners were just delaying to sell during the pandemic, all the while watching the value go up and hoping to pocket more as the delay the sale. Now, if they panic in the next year or so, what will that flash inventory do to existing inventory and also the preconstruction projects due to complete in the next 2 years or so? Whoever gets a deal on a house now will not go into a preconstruction that is due in a year or two. They bought, the deal is done, so who picks up the preconstruction home they would have gone for, had it not been for this sudden inventory influx?
Finally, what happens to condos in relation to Airbnb? Currently, in cities like Toronto, condos are still very, very hot. In truth, why would they not be? Here is the list of eager buyers for those condos:
-Foreign investors planning to live in.
-Foreign investors planning to rent the unit out long term.
-Foreign investors buying for their university and college student children.
-Canadians just trying to grab something in the city they can afford.
-Canadians and foreigners looking to buy and rent out their unit(s) through Airbnb.
This last one, Airbnb, is huge in terms of how many units end up being pulled out of the long term rental market and the situations they may create in the buildings where they are located. Now, Airbnb is pretty good as a concept but I look at it like this. Pandemic notwithstanding, the company stock has hit a double top in the lower 200's range and is down quite a bit from that range. The hotel industry does not seem to be too afraid of it because it is calculating that if Airbnb is compelled to be regulated like a hotel company and then gets slammed with the cost of liabilities associated with being a hotel company, it may not survive based on the business model and financials it is based on currently. Modern MBA on YouTube has a 25 minute video about this that is very informative. It may be biased to favor hotels, or it may not be. The bottom line is this. Will the condo market manage to survive- at its current valuations- the failure of Airbnb or any serious push against short term rentals on municipal, provincial or federal levels?
So there you have it, dearest readers- some interesting questions about the near future of the real estate market in North America and in particular Canada. I have no horse in this race and, honestly, my only bias is that I want to ask good questions, which I hope these ones are. Please share some thoughts, any answers you might have and any questions you are asking yourself currently about the real estate market.
Until next time :)
Without further ado, let us begin with the questioning (inquisition? haha)
I have recently heard that Paris, Ontario is the hottest new destination for more affordable preconstruction projects. I have been hearing a lot about small towns that are in the sphere of more notable urban hubs in Southern Ontario. My question is this. Given that cities like Brantford, in the sphere of which Paris is located, do not have a strong local economy, a thriving job market and salaries the likes of Peel and Halton regions that are closer to Toronto, who will be buying these properties and who will they resell them or rent them to ultimately when the time comes? Let me tell you why I believe that none of the default go to categories of people work out in this case.
- Foreigners: First, they no longer want to buy and hold properties for the yield as bonds of countries like Canada and USA are increasing their guaranteed yields. Second, the idea that these buyers will place their families there makes little sense as small towns typically do not have the infrastructure for newcomers the way that bigger places do. Third, they will quickly calculate that buy and rent out will not work that well as the average dual income family may find the property too expensive to rent; also, foreign buyers who reside abroad rely on rental agencies to manage the rental process and these agencies are found in urban hubs only.
- Remote workers: Well, a study from early in the pandemic done in USA (please Google for more info) has shown that only 33 percent of jobs in USA can be done remotely, some with major modifications on the employer's part. The stats for Canada might show even less as we lag in tech jobs that ostensibly make up a chunk of those 33 percent of US jobs. Now, will all of this preconstruction plus inventory just waiting to flood the market be enough, or maybe a little too much for the number of remote workers looking to buy (those who are not forced to come back to the office)?
- Locals: If the economy of a local urban hub has not been growing a lot, will the urban hub locals as well as people living in nearby towns be enough to absorb all the current and upcoming inventory by purchasing and renting?
My next category I am wondering about is inventory. In USA, there are currently estimated to be around 1 million homes that owners were just delaying to sell during the pandemic, all the while watching the value go up and hoping to pocket more as the delay the sale. Now, if they panic in the next year or so, what will that flash inventory do to existing inventory and also the preconstruction projects due to complete in the next 2 years or so? Whoever gets a deal on a house now will not go into a preconstruction that is due in a year or two. They bought, the deal is done, so who picks up the preconstruction home they would have gone for, had it not been for this sudden inventory influx?
Finally, what happens to condos in relation to Airbnb? Currently, in cities like Toronto, condos are still very, very hot. In truth, why would they not be? Here is the list of eager buyers for those condos:
-Foreign investors planning to live in.
-Foreign investors planning to rent the unit out long term.
-Foreign investors buying for their university and college student children.
-Canadians just trying to grab something in the city they can afford.
-Canadians and foreigners looking to buy and rent out their unit(s) through Airbnb.
This last one, Airbnb, is huge in terms of how many units end up being pulled out of the long term rental market and the situations they may create in the buildings where they are located. Now, Airbnb is pretty good as a concept but I look at it like this. Pandemic notwithstanding, the company stock has hit a double top in the lower 200's range and is down quite a bit from that range. The hotel industry does not seem to be too afraid of it because it is calculating that if Airbnb is compelled to be regulated like a hotel company and then gets slammed with the cost of liabilities associated with being a hotel company, it may not survive based on the business model and financials it is based on currently. Modern MBA on YouTube has a 25 minute video about this that is very informative. It may be biased to favor hotels, or it may not be. The bottom line is this. Will the condo market manage to survive- at its current valuations- the failure of Airbnb or any serious push against short term rentals on municipal, provincial or federal levels?
So there you have it, dearest readers- some interesting questions about the near future of the real estate market in North America and in particular Canada. I have no horse in this race and, honestly, my only bias is that I want to ask good questions, which I hope these ones are. Please share some thoughts, any answers you might have and any questions you are asking yourself currently about the real estate market.
Until next time :)