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Why the market will persevere

It’s hard to predict what the future will bring in a world as dynamically turbulent as ours these days. This is an era where everyday brings a new challenge, a new development, and above all – huge fast paced change. Interest rates going up and inflation creating challenges represent the biggest obstacles that our real estate market has faced since the 07-08 recession. 2008-2010 represented a period where recession driven real estate demand fell and was briefly stagnant in the market. From the mid 1990s to the present demand has always been strong with that one outlying exception. There is no reason why demand won’t continue to remain strong in the coming years and decades – immigration is one reason, a shortage of houses is another. A recent study by Scotiabank found that two-thirds of the national shortfall in homes was concentrated in Ontario. Ontario is over 1.2 million homes short to reach the G7 average of houses per capita (homes per people). At the same time, over 2 million people are projected to settle in Ontario over the next decade. We need at least 1.5 million homes to accommodate this increase in the population, let alone to bridge the housing gap that already exists.

Despite all the pressure on governments and builders to get more supply on the market, Ontario builds 70,000 homes per year, we are at least 30,000 houses a year short of meeting the most basic of demand trajectories. These forces are the reason why average home prices in the GTA soared from just under $600,000 in 2015 to $1.4 million this year. Low interest rates and an open market massively compounded price growth. A decade ago the average house price in the province at large was $330,000, now it is $923,000, truly spectacular growth. While average house price growth reached 200% over the last decade, incomes rose by less than 40%. Even in the event of high rates, a recession, and  a slowdown in prices, demand will stay strong. Prospective buyers waiting on the sidelines will jump in, immigrants will keep coming in (even if in smaller numbers), and there will be plenty of job opportunities in a number of different fields.

If we do head into recession territory consumption will go down and there will be a slight cooling of demand which should slow prices down for goods and services down and cool business investment. This will lower inflation and take pressure off of the BOC. The end result will be lower interest rates and more affordable mortgages. On the supply front it’s also important to note that housing starts have been rising under the Ford Government from 100,000 to over 140,000 units under construction. Little by little some of the supply constraints are being addressed and results are starting to trickle in. A PC majority win in the election will be a strong supply boon for housing.