10 Trends to Keep in Mind While Shopping For a House in 2021
Are you considering a house purchase in 2021? The following trends reveal the current state of the real estate market.
09/03/2021
Are you considering a house purchase in 2021? Debating whether to buy a house this year or wait it out? Are homes becoming cheaper or more expensive? The following trends reveal the current state of the real estate market. This will help you make a more informed decision as you shop for a house:
1. Canada is headed for a gradual economic recovery
Economic growth has been a bit slow for the
start of this year, despite some Canadian banks
reporting record-breaking profits in the winter.
The lockdown has continued in Toronto, piling
pressure on small business owners who have
expressed their frustration.
The
stay-at-home order may be lifted by March 8th,
and more people will continue receiving
vaccinations with the goal of having all
Canadians vaccinated by September 2021.
However, expectations are that the economy will
rebound and this will help counter the rising
unemployment. A more robust economy is crucial
for the long-term sustenance of the hot pandemic
real estate market, yet to show any signs of
slowing down.
2. Real estate had a strong start for the year
According to the Canadian MLS® Systems, the first month of 2021 was another record-setting month in terms of national home sales. Sales rose by 2%, despite the number of listed homes reducing by up to 13% from December. The figures are in line with the forecast that home sales will continue growing in 2021 and set another record.
3. Housing starts
There is a constant worry of reduced supply
of new housing units in Canada, and this will
cause an imbalance of supply and demand. In the
first month of 2021,
Canadian housing starts
were at 282,000 units, a significant increase
from 217,000 units in January 2019.
These represent the number of new construction
projects on privately-owned houses, and a
housing start is counted if work on the
foundation or footing has commenced. It's one of
the indicators used to predict if there will be
new additional units throughout the year to
counter the limited supply in the market.
There are still markets with limited supply,
and in fact, 9 of the 11 markets that reported a
month-to-month reduction in sales for 2020 were
all in Ontario. As the weather improves and
following the removal of strict covid-19
restrictions, there might be a surge of new
supply.
4. Low housing inventory
The housing inventory reveals the number of
available homes for sale/active listings. Canada
has 1.9 months of inventory on a national basis
as of the start of 2021. Based on the current
sales activity, it will only take
1.9 months to
liquidate the active listings. It has been the
lowest reading since 1982.
In some
Ontario markets, the number of months of
inventory was less than one. It has also been
noted that homeowners have been reluctant to
sell their homes as the pandemic rages. This, of
course, has implications if you're shopping for
a house. The prices will remain high because of
the limited supply. It may also become harder to
find the ideal property.
5. Gains in detached homes
Detached homes were hot in 2020. The pandemic
forced more people to work from home, and people
were looking for space in the suburbs. Increased
demand also saw the rise of detached home
prices.
On the other hand, condos didn’t
have a stellar year. Prices were falling in some
markets as the demand decreased with more people
avoiding the cities. There was rising
unemployment, and investors were less reluctant
to purchase condos for rental purposes. Before
the pandemic, condo prices had already priced
out many buyers.
As the
inventory for single-family houses reduces, some
real estate developers are responding by
launching new developments. For instance, you
can check this page if you’re looking for homes
in Ontario:
https://paradisedevelopments.com/blog/communities/where-to-buy-real-estate-in-ontario/
6. Spring is still the best time to buy
Worried about the limited inventory on the
market? How about waiting until springtime?
There are generally more home listings, a trend
that has been observed from year to year. Does
this mean that homes will generally be cheaper?
Well, the increased activity during springtime
also prompts other buyers, and a sort of
competition ensues.
The ideal mindset
entails searching throughout the year. The
winter months are better for deals because it’s
the off-season. Fall and summer also have
increased activity, as they are some of the best
times to move.
7. The rise of home prices
Real estate prices in Canada keep rising, and
they are rising higher than in any G7 country.
Ottawa, for instance, had the highest house
price increase at 19.69% in 2020. In Toronto,
house prices rose by 10.27%.
Is there a
risk that the market will overheat, and what
steps will be taken to slow down growth? The
Bank of Canada has expressed worry, and Tiff
Macklem, Governor of BoC, reported signs of
“excess exuberance.” Currently, the overnight
interest rate is at 0.25%, and it may be
retained at a near 0% level until 2023 for the
economy to have fully recovered. But at the
moment, growth from real estate is considered
positive in the looming recession.
Real
estate also represents a significant part of
Canada's total GDP, reaching 9.48% in the third
quarter of 2020.
8. Cheaper mortgages
Borrowing mortgages in Canada has become
cheap, and the prime rate is at 2.45%, the
lowest level since the financial crisis. Some
lenders are even offering 5-year fixed terms at
just 1.39%.
So it's cheap to borrow right
now, which has translated to the growth of the
real estate industry. Homeowners should watch
out for any changes in the overnight rate as it
tends to determine fixed rates.
9. Trends in luxury real estate
According to Remax, the Canadian luxury real estate market experienced growth through the pandemic, and Montreal was the hottest market. However, not all markets were unscathed. A report shedding light on the state of the Toronto luxury real estate market has revealed price decreases over 2020 leading up to February 2021. The market may be reacting to proposals to increase the municipal land transfer tax by 1% on homes selling for more than $2 million. What is expected in 2021? Well, it's anticipated that prices for homes valued at $1 million or more will increase by 7.5%.
Bottom Line
In summary, the key trends in 2021 include low mortgage interest rates, limited inventory, demand for detached houses, and rising home prices. To counter the limited inventory, homeowners should expand their horizons and consider alternative markets to find ideal properties within their budget range.