This post discusses Canada’s real estate market slowdown from the perspectives of both home sellers and rental housing providers.
While home sales are slowing down in B.C., rental rates are increasing. This situation is creating new opportunities for landlords and long-term real estate investors.
Canada’s Real Estate Outlook for 2019: A Tale of Two Markets
An Investor’s Perspective on the Central Okanagan Housing Market Slowdown
Canada’s real estate market is often described as being in either a “good” or “bad” state. These emotive, polarized adjectives typically come from either home sellers or real estate agents who are often the first ones to feel the brunt of a market swing.
I am going to depict the British Columbia housing market through two very different lenses:
- that of the home seller
- the story through the eyes of renters and rental housing providers.
The Seller’s Viewpoint
Here is one side of the story often heard from sellers:
- sales have begun slowing down
- housing listings are climbing
- home prices are cooling off.
Home listings have started to expire, to the frustration of both sellers and their agents, which leads to us hearing more and more colourful adjectives such as “bad” or “tough” to describe BC’s real estate market.
Housing markets typically slow down for one of two reasons: either market drivers like negative job growth and population decline cause demand to slide — much like Calgary after oil prices plummeted in 2011 — or market influencers like rising interest rates or changes to government policy put a damper on home sales.
The current slump in B.C.’s housing market was caused by market Influencers.
First, Canada’s banks have begun cautiously increasing mortgage rates, making home ownership and the associated mortgage payments a more expensive proposition.
Second, both our provincial and federal governments have introduced a new speculation tax and mortgage stress rules in an attempt to cool off the market.
And so far it’s working.
Because of these new legislative changes and rising interest rates, the average mortgage borrower in B.C. has had their buying power diminished by approximately 35 per cent, and we’ve seen a 40 per cent decrease in home sales over the past year.
While it’s easy to get swept into the doom and gloom rhetoric of the “bad” housing market, on the flip side of this same coin exists an entirely different perspective – that of the rental housing provider.
A Vantage for Investors
Now that we’ve illustrated the impact of these market influencers on home sales, what additional effects can we expect to see play out in B.C.’s rental market? How does this situation impact real estate investors and landlords?
First, in a slower housing market, the number of potential renters dramatically increases as fewer and fewer people can afford to own their own homes.
British Columbia and especially the Central Okanagan are currently some of Canada’s most desirable places to live in.
With the first sign of downward pressure on real estate prices, people migrating to this region will typically adopt a wait and see approach — opting to rent first rather than risk a possible negative home equity situation.
This risk-off mentality further increases demand on the rental housing market, exerting downward pressure on vacancy rates and causing leasing rates to rise.
New Opportunities Loom for Rental Housing Providers
While B.C.’s housing market is considered to be in a “tough” state for home sellers, rental housing providers now face a market ripe with opportunities.
Let’s assume you’ve wrapped your head around the effects of rising rates and government policy on B.C.’s rental market and you now have an appetite to add an income property to your portfolio to service this booming rental demand.
How does this so-called “tough” housing market affect you now?
With plenty of homes to choose from, properties selling at deep discounts and with favourable terms, is this not a fantastic market for real estate investors?
To quote a mentor of mine, “how you see, is how you hear.” - Don R Campbell
In other words, it’s all a matter of perspective.
Some may question your judgment for buying into the housing market right now.
Why? It’s the uncommon thing to do, which is almost always met with resistance. But taking the road less travelled can often be the road to success and financial freedom.
To quote legendary investor Warren Buffett, “buy when people are fearful and sell when people are greedy.”
While Canada’s housing market may be frustrating sellers, exacerbating realtors, and being labelled as “bad” by the media — from the vantage of the investor, an entirely different situation is unfolding.
Discover the newest investment properties in the Central Okanagan here.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.