After peaking in the summer of 2017, Oakville house prices made a comeback in 2018, but in the last 6 months prices have dropped almost $75,000. Prices are now down $160,000 from the peak achieved in June 2017.
Condo prices were relatively unaffected in 2017, but after peaking in May of 2018 prices have since dropped $60,000 wiping out all of the 2018 gains.
Based on current market conditions and the trend over the past three years it looks likely that prices will continue to drop in 2019.
In a nutshell, at the peak of the market home buyers didn't look critically at the value they were getting for their money and as a result, they pushed home prices Beyond levels supported by local incomes and economic fundamentals. CMHC the federal government housing agency has said Toronto and Vancouver have “house prices are higher than levels supported by personal disposable income, population, interest rates, and other fundamentals.”
As a result unaffordability, purchases of Oakville homes have dropped 41% since 2016.
Since fewer people are buying, homes are sitting on the market for longer and supply of houses is piling up.
The Oakville house market is now balanced with more than five months of supply.
The condo market is still a buyer's market, with a little over three months worth of supply. However, the trickle-down effect from the lower house and townhouse prices appear to be driving condo prices down as well.
At mortgage sandbox, when attempting to predict the future trajectory of home prices we look at five key factors.
From an affordability standpoint:
Income growth over the past decade has been relatively stagnant and employment levels are high with little room to add more jobs.
Interest rates are rising and that erodes affordability.
Economic stability is strong now it doesn't appear that it will get stronger in the future.
Overall, there's a broad recognition that home prices are beyond levels sustainable by economic fundamentals.
Greater Toronto real estate, has benefited from inflows a foreign real estate investors and local investment. Given the 41% drop in sales activity since 2016, it would appear that these capital flows have tapered significantly. This means that home prices are now more reliant on local economic fundamentals.
Oakville real estate prices will need to be supported by local economic fundamentals.
Up until the beginning of 2018, governments at all levels were concerned about out of control real estate prices and were implementing policies to orchestrate a “soft Landing”. This implies that the current market conditions are in line with what the government wants so, at this time, Canadians should not expect government intervention to add stimulus to the housing market.
Supply has been trending upwards and the market for Oakville houses is now balanced while the condo market is still a seller’s market with less than 5 months with supply available for sale. A lack of Supply would slow the rate of home price declines but increasing supply will reduce the need for households to “max out” their budget.
Sentiment is volatile, just look at how people once thought gold would hit $2,000 an ounce, that oil would reach $200 a barrel, and that Bitcoin was could only go up and up. Sentiment changes over time and can be strongly influenced by traditional and social media.
Sentiment seems to have turned negative in Vancouver but seems more resilient in Toronto. Sentiment will determine people’s preference to stretch into high prices properties, however, there are limits to how much people can stretch their budgets.
Buyers of Oakville houses certainly have more negotiating power. So long as you aren’t taking on an uncomfortable amount of debt and this is your “forever home”, 2019 will be a good time to buy but 2020 may be even better.
If the trend continues, as house prices drop, people will buy up the excess house supply instead of buying townhomes and condos, and that will leave unsold condos. The extra condo supply will then lead to even lower condo prices. You could call it, “trickle down supply.” Similarly, if house prices in desirable Vancouver neighbourhoods continue to drop then you should expect prices in the suburbs to drop.
At the end of the day, a home is a place to live more than it is an investment. If you feel you need a home to have the lifestyle you’ve always wanted, then now is the best time since 2008 to be a buyer. Just be sure to drive a hard bargain and keep in mind that prices will likely continue to drop after you buy your home. It’s impossible for everyone to perfectly time the peaks and troughs of the market.
We recommend also you also read this article on the current risks present in the real estate market.
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