A recent report from the Canadian Real Estate Association signalled that housing prices in the Greater Toronto area fell 0.3 per cent from the same time last year.
The news was apparently enough to give new homeowners a bad case of buyer’s remorse, cause deals to fall through and induce hesitancy among those eager to enter the housing market. There’s speculation that Vancouver and Victoria could be next, and at long last, the housing crash could be upon us.
Don’t bet on it.
Housing, like almost every investment, is a waiting game. Data show that investing in stocks or housing any number of years ago — 10, 20, 30, 40 — would provide positive returns in 2017. And that considers the numerous shocks, drips, drops, recessions and asset-bubble bursts we’ve seen in the past several decades, including the 2008-09 global financial crisis that was sparked by the crash in the U.S. housing market.
In 2007, right before the global financial crisis, an investment of $10,000 in stocks that followed the S&P 500 index would be worth about $17,500. A house purchased in Canada in 2008, during the crisis, at an average value of $300,000, would now, on average, be worth $475,000. Of course, during that time the value of both the S&P 500 Index and a house in Canada would have dropped precipitously and for an extended period.
After the housing-market crash, it was common to see reports of homeowners being unable to sell their homes in both Canada and the U.S. — no matter how low prices fell. For all intents and purposes, it was a buyer’s market, but nobody was buying.
Ask those same people who didn’t buy then how they feel now.
Investing is a risky and calculated game; only those who are dedicated to the craft can play it in the short term and win — and even then, it’s dicey. For the rest of us, patience is truly the most important virtue.
Look at a graph of any stock-exchange index, such as the S&P 500 or the TSX composite index, or a mutual fund, or a group of commodities, and you’ll see that almost all of them follow an ascending path. Yes, there are devastating valleys that can be sharp and unexpected, and even linger for a few months or years, but in the end, the value of the investment keeps growing, because, over time, markets move toward stability. For every correction, there is an eventual reaction.
In the long term, housing has proven to be a safe investment. You’ve undoubtedly heard economists declare that the cause of this housing crisis is the result of demand outpacing supply, and they’re correct: There are more people who want to purchase property than there is property for them to purchase, particularly in markets such as Toronto, Vancouver and Victoria. The market is out of centre.
The thing about markets, though, is that they eventually move back to stability.
We’re already seeing the actions that will help push the market back to “normal” prices from governments at all levels, allowing for creative uses of properties to accommodate growing populations, such as permitting flexibility in the creation of secondary suites, being more lenient in rezoning applications, approving more high-rise buildings (because building vertically might be the most efficient and realistic solution to growing housing supply), creating more affordable living units, and tightening rules around speculation, rent increases, and down-payment requirements. These policy decisions are welcome news for those who want to enter the housing market, but can’t afford to buy at current prices.
It’s also potentially bad news for current homeowners — but likely only in the short term. As more housing units become available, there will be more supply to fill demand, and current house prices might dip. Presumably this will lead to more buyer’s remorse, broken deals and declarations that finally, housing prices might come down, and stay down.
But, even if prices dip for a few months or a few years, you can bet that they are going to climb right back up, and before you know it we’ll have another seller’s market on our hands. Because no matter what initiatives government might take up, they can’t build housing units faster than people want to buy properties.
Those who avoid panicking, and can afford to weather the potential storm, will likely come out with the return on investment they were hoping for, and potential buyers will have to relive the current situation.
Improving supply is the best solution governments have, but it’s no lock to change the long-term trajectory of housing prices.
Justin Bedi is a policy analyst and writer who specializes in international monetary economics.
