Impact Of Current Events On The Housing Market
Impact Of Current Events On The Housing Market
Government regulations and policies
Government regulations and policies can have a significant impact on the housing market. For example, government regulations and policies may affect the availability of affordable housing, the cost of housing, or the type of housing that is available.
Local governments enact ordinances that affect zoning, housing and building codes, and other related laws.
Policies that subsidize people that are engaging in continuing education for example mean increasing the number of potential buyers. This can in turn change an area close to a university from a buyer's market to a seller's market. This strong demand can raise the asking price while maintaining the same level of home sales.
In our current times, things like social distancing can influence people to move out of highly populated areas since they can work from home. Open houses will also have to adapt until the pandemic recedes. Housing markets are greatly affected not just by policies touching upon the Bank of Canada, what our American friends know as the Federal Reserve, but also policies that change the way people live.
With the country having more than one industry severely impacted by COVID, the housing inventory can also increase as people are unable to pay their mortgages. Local markets will react differently and even residential real estate will behave differently from commercial real estate - office buildings, shops, etc.
The state of the economy
Speaking of changes in economic activity, the overall state of the economy will affect the real estate industry significantly. If interest rates rise, so too will house prices since most prospective buyers will need to pay higher mortgage rates.
If interest rates remain high for a long time then it can create pent-up demand as people wait for lower interest rates to purchase a home.
Real estate markets can greatly differ, some people may be looking for a primary residence while others are browsing new listings for investment opportunities.
Over time, real estate prices tend to rise if other factors remain stable which means that if you can secure a home at a lower cost now then future increases in the home's price can mean a great return on investment in the future.
Unemployment rates and foreclosure activity
Real estate trends also tie to unemployment rates and foreclosure activity closely. Whether someone is not able to keep paying rent or if they need to foreclose on their homes can mean that the once high price growth slows down. Properties affected by unemployment rates vary greatly in terms of price, so even single-family homes can become available for lower prices.
With remote work becoming more and more common as well, a property close to a city centre nay bit commands the same price as before. The evolution of business after the pandemic can mean that selling homes in in-demand areas become more common, flattening the price curve based on location.
Foreclosure activity can have a significant impact on the real estate market. It can take some time for the real estate market to recover after a period of high foreclosure activity. If you can retain your home when the local market starts looking up then you can benefit from rising prices when you are selling. Then again, many people do not get to make that decision given their income and whether or not they have other assets to sell or borrow against.
Homeownership rates and demographic shifts
Millennials do not live the same way as baby boomers. While real estate research is still trying to pin down the key questions that each demographic asks themselves when looking at home buying, you can observe that there is a disconnect between what each group values.
While many young people pursue continuing education to stay competitive in the job market or simply want to live a different kind of life, one where children are delayed or do not happen, this changes how they behave as a buyer.
Between economic inflation making it hard to acquire a house and the limited supply of housing in large cities, millennials move into their own homes much later in life.
Migration patterns
Canada's population growth is strongly affected by immigrants and that means that new buyers come into the market regularly. The increased or decreased flow of immigrants can change the level of demand in the market and if there are not enough buyers, then sellers will eventually have to lower their prices to remain competitive.
There are also internal migration patterns where people move across Canada for a variety of reasons: their industry offers more opportunity in one province, there is less risk of drastic climate events in another, and so on.
The differences in mortgage rates between provinces and territories can cause buyers to flock to different housing markets. Given what people value and their income, moving to different parts of a province or even across province lines can be beneficial.
Construction costs and availability of materials for building new homes
The cost of materials and the availability of workers can affect how much homes cost to build. If the construction industry is booming and there is a lot of demand for workers, then the workers will be able to demand higher wages. This will be reflected in the prices of new homes. The cost of materials will also go up if there is a lot of demand. This can cause the price of an existing home to go up if the homeowner decides to sell since there is a limited supply of houses.
Home construction is a long and very involved process that not every buyer wants to go through. Talking to a real estate agent before deciding on building or buying can have lasting effects on the property you end up going with.
Finding the land, paying for it, and buying the materials and labour is a big endeavour and before making a decision, it's a good idea to contact some real estate agents to get an idea of what the status of home sales are like in your area.
Changes in the local climate
Climate change is something we are all dealing with and in the real estate market is means that some homes are not valued as much as before since their purchase comes with new risks. Prices for beach-front properties, if they are close to a zone being eroded or eaten up by rising sea levels.
More violent storms or harsher winters also have potential buyers and real estate agents second-guessing the viability of a home. The risk involved for the buyer to find themselves with a home that is dangerous to live in increases and as such real estate markets that incur a high risk will mean a cost reduction.
Local housing policies and politics
The housing market in Canadian cities is a hot-button issue. While major centres like Toronto and Vancouver come with their share of newsworthy issues around shortages, homelessness and affordability for locals, the same problems are present elsewhere in these big cities.
Since housing costs are based on what people can afford to pay in an area, problems with low-income housing, poverty reduction and homelessness have repercussions for real estate markets. People unable to pay rent or purchase homes will reduce demand for properties, putting downward pressure on prices.
Related to the policies we looked at earlier, housing policies can help people get back on their feet and become actors in the real estate market instead of needing to live in the streets. More affordable housing, or rent-geared-to-income housing, can create more movement in the real estate market, allowing people to move into their first homes and allowing sellers to move on to better opportunities as well.
Crime rates
Even if mortgage rates are low, the sale of properties in high crime rate areas can be a difficult task. Sellers in those areas will often have to sell at a loss when crime rates have risen since they initially bought the home. While the home itself may have appreciated, either through renovations or something else, the location being undesirable can mean a new sale price that is lower than expected.
Real estate is a location game, maybe more than anything it is the factor that can change the price of a single square foot.
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