// REAL ESTATE CONFIDENTIAL //
Chris Kapches, President & CEO of Chestnut Park Real Estate Limited, Brokerage, is a lawyer with an extensive career working within real estate organizations. Chris has served as Executive VP for the Toronto Real Estate Board (TREB), as well as roles on numerous TREB committees. Chris has been the Chairman of the Real Estate Council of Ontario’s Discipline and Appeals Committee for more than fifteen years.
Are House Prices About to Fall? The answer requires a consideration of four factors.
T
he incredible increase in sale prices of homes, especially since the beginning of the pandemic, has generated skepticism about the sustainability of the residential real estate market. Prices in the greater Toronto area have increased by more than 30 percent since 2019. Similar and higher increases are being experienced in almost every community in southern Ontario, from Hamilton in the west, to Barrie and Southern Georgian Bay to the north, to Prince Edward County in the east. At the beginning of 2022 the average sale price of a single-family home in Toronto was almost $1,700,000.
and no longer hoarding money. People are beginning to travel and taking long-postponed holidays. Monetary policy is being tightened. Inflation has reached levels not seen in decades making it an absolute certainty that mortgage interest rates will rise, probably by the end of the first quarter, and perhaps sooner. Canada’s inflation rate in January was almost five percent.
The dramatic escalation in the price of homes is not restricted to southern Ontario. In fact, it has become a global phenomenon. This unprecedented increase in the price of homes has not gone unnoticed. The International Monetary Fund (IMF) announced that its global house price index has far exceeded the peak it reached before the 2007-2009 financial crisis. This assessment begs the question – is the real estate party about to end?
The economic and real estate landscape is very different today than it was before the financial crisis. There are fundamental factors at play today that explain why house prices are so high and that they are very likely to remain that way, notwithstanding the concerns of the IMF. There are four forces at play that will not only cause houses to remain high, but to continue increasing. This is particularly true in southern Ontario.
The IMF cites a number of legitimate concerns that it believes will negatively impact the market. As government and societies combat and cope with the corona virus, governments are beginning to wind down economic stimuli. Consumers are spending again
Firstly, people are less financially vulnerable to rising interest rates, which are likely to be moderate in any event. Banks learned their lessons after the financial crisis and are substantially more stringent with their lending practices. Even Canadian Banks, already prudent lenders, have tightened their lending policies.
In the face of these changes and challenges, the IMF has pronounced that there is a significant downside risk to house prices and that the current level of house prices is unsustainable. But is this really the case?
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