Making Sense of This Market

By Jacquie Bunker  Posted on   In BuyingInvestment PropertySelling

“Average detached home price jumps almost 20 percent in January”, “Fewer Home Sales in January as the Number of Homes for Sale Continues to Elude Buyers in Kitchener – Waterloo” ”Slower Home Sales – Big Price Gains in November”. We see/read/hear these headlines every month, but what do they actually mean? I turn these headlines into numbers we can all relate to.

Let’s take a look at January’s housing numbers:

The median price of a detached home jumped 19.4% year-over-year to $620,750. What does this actually mean? Well, last January, the median price of a detached home was about $520,000, $100,000 less than what it is this year.

$100,000. That is a lot of money: to make and to spend. The average Canadian made $52,000 in 2019, and that’s before any taxes. Assuming a 30% effective tax rate, that $100,000 jump in housing prices in one year is the equivalent of working 2 years and 9 months at $52,000/year and not paying one other expense other than taxes. Living expense-free? Not very likely.

Ok, that’s detached houses over $600k, let’s look at a more reasonable price point: townhouses. The median price of a townhouse in January was $432,013, up 5.3% in one month. Yes, buyers paid about $22,000 LESS in December vs. January for the same townhouse. To save $22,000 in a month, you’d have to work the full month and make almost $200 an HOUR (before taxes), and of course not spend one penny of it.

The data in our local market over the past few months has indicated a spring market similar to 2017. Multiple offers, houses going significantly over asking, no conditions. In 2017, detached houses increased in price 5.6% and 6% in January and February leading up to spring. If that’s the case here, we still have another 5-6% to go. On a $620,000 home, that’s another increase of about $35,000 in one or two months. If you have your 10% down payment in the bank ($62,000), it would take over 22 years to make that $35,000, using a 2% interest rate compounded annually.

Many people choose to sit out these crazy markets because they think the bubble will burst and there will be buying opportunities on the other side. We saw a slight dip in June of 2017, but housing prices picked up again and have continued to increase since then with the median sale price of all homes increasing over 31% since June 2017. We have strong economic factors and fundamentals contributing to local growth here that makes it hard-pressed to see a downturn: diversified employment (tech, insurance, post-secondary education, manufacturing, aerospace, etc.), investment in transportation and infrastructure (GO and LRT), high population growth, lower housing prices and limited land for sprawl. All of these point to a strong local real estate environment for years to come.