SOBOR's Story - My Weekly Top Five
Top Five Reason for Our Market is Overheating
Posted: January 27, 2021 by Stephen Oliver
This week's top five.
This is a new section to my blog that will hopefully get you thinking about Real Estate, Finances, Issues in Our Communities and Life. I will stay away from politics and religion as they are the social media death nails. They are my opinions from what I see every day in Niagara. Agree or disagree it’s 100 ok. Just be polite to one another.
Top Five Reason for Our Market is Overheating
1. Lack of inventory will almost always come in number one in this category. We are hovering around 1 month worth of housing in Niagara (that’s an average). That is historically low and as of today shows no sign of increasing. Low inventory numbers can create a panic situation for sellers who have already sold and need to find a home, buyers who are trying to get into the market and investors who are trying to capitalize on the market. When you get all three of these scenarios playing in the same sandbox like we have now, you have a perfect storm and a feeding frenzy of a market. Which by the way is not good for any of the three groups I listed above.
2. Out of market influence. As we saw In 2016 we had a surge in buyers coming to Niagara to find value in our local market. Why? There are many reasons but two that I hypothesize are the perceived relative safety from Covid-19 (which I really can’t prove) and relative value compared to our counterparts on the North side of Lake Ontario (which is easily demonstrated with numbers).
Regarding the Covid suggestion this rush of the market started shortly after our first lockdown ended but really started to ramp up in Quarter 4 of 2021. It might be coincidence but I think that when we look back one, two even three years from now we will see that it was definitely an influence.
The numbers however don’t lie. I’ll pick on my hometown as an example. Fort Erie. At the end of 2019 the average price was $507,675. The year over year increase in price for 2019 to 2020 was 32% and that increase was staggering. Now my friend and Realtor® Patrick Burke is salivating at the idea of me going into a stats frenzy right now. But that will come in future posts. The growth in market price in my town is an indication simply that the demands on the market are ramping up in those places where "perceived value" is available.
3. Seller's Covid Concerns / Fatigue. This one may take some time to sort itself out. There is a portion of the market out there that simply believes now is not the time to try and sell their property. The belief being that the hyperactivity of our market, the sheer volume of people looking for homes and the potential risk of having strangers running through their house, just isn't worth the risk right now. Besides, where would they go.
Another factor that has come into play in the last year particularly is the health of our Seniors homes. In a normal times the steps of home ownership include our elderly, less mobile, or those who need care, moving from their homes to the safety of seniors homes and putting their homes on the market. This seems to be a step that has dramatically slowed over the last year. The issues surrounding Covid - 19 appear to have affected seniors moving out of their homes and thus they are staying in them longer and ultimately affecting the supply chain of homes coming on the market. Again, affecting inventory levels.
4. Remote work. The ability for employees to remotely work is a relatively new concept that was forced upon us. Now for many it isn't an option, however, for those that used to be required to sit in an office 5 days a week and had to chose between commuting or being relatively close to work, remote work has opened up a whole new world. The option to work from home has become a significant shift from some employers and there are companies that have indicated that they may not bring employees back and move to a more virtual work environment. Now this is a relatively new concept for a lot of companies and may be a trial and error scenario, but there may be some credence to the thought that people can now work from anywhere they want to and still be productive. This opens up living in more affordable communities and still being able to be employed where they currently are. I personally have clients who have been given this option and have chosen to relocate from the GTA to Niagara because they do not have to worry about commuting daily.
5. Too many buyers. The initial lock down in spring of 2020 brought Ontario to a screaming halt. Sales numbers in some markets were off 60-70%. This created pent up demand. The buyers who couldn't or wouldn't transact at that time sat and patiently waited. Then when the government started to re-open up the province, the buyers were back and looking in full force. We saw sales numbers that lead to one of the fastest market turn arounds on record. Sales simply skyrocketed. That combined with all of the factors in points 1-4 above has created a feeding frenzy of a market. And to be honest, the buyers haven't stopped and are still out there. We have far more buyers than sellers and that simply has put a demand on inventory and is continuing to drive prices up.
The next few months may be challenging for home buyers, however, as with most real estate markets, it will turn around and stability will return.
