Are the current increases in real estate prices unsustainable? What we are seeing is a tale of the haves and have-nots playing out before our eyes in the economy and in the housing market. It’s as if we’ve entered the domain of the movie The Hunger Games which featured volunteers from various districts fighting for their survival while the wealthy watched.
Those who are buying bigger houses & condos, still have their jobs and can conveniently work from home to earn a living. They aren’t spending their money on travel or evenings out. Instead they are paying off debts and putting money towards buying a bigger home. They can take advantage of the low interest rate environment.
The other segment of the market represents the have-nots or those from the Districts if we think in Hunger Games parlance. They have lost their jobs. They are looking for cheaper rentals, which are now possible. Some have moved back home with parents while others are living on the streets, in parks or in our shelter system relying on food banks. Government assistance and the low interest rates are keeping many in this segment afloat, for now.
Once the lockdowns are over, those with jobs will shop to their hearts’ content, possibly driving us closer to inflation. Those who have lost their jobs will continue to look for work, receive government assistance and try to survive so they do not become a casualty.
The economists are calling this a K shaped recovery where one branch of the economy does well and the other branch does poorly. To me, this widening of the income gap sounds like the beginning of the Hunger Games. This is not good for anyone in our society.
We should want everyone to have the opportunity to thrive and purchase a home if they choose.
Tiff Macklem, Governor of the Bank of Canada, said there is little slack in the economy so he doesn’t see inflation as a major concern. This just means that the interest rates will stay low, which will keep propelling the housing market to continue its upward trajectory.
The Toronto housing market is performing extremely well now without a lot of influence from foreign investors given that travel is so difficult now.
So what happens when the borders re-open and travel flows freely?
- Immigration increases.
- International students come back.
- Canadians living abroad return home.
What does all of this movement into our country mean?
- More demand on rentals.
- Increased demand on the condo market.
- More homes purchased by those relocating.
While most people are now buying homes because of their needs and are not speculators, one still has to worry that the suburban locations which have seen huge price increases could fall out of favour when life returns to normal or close to it and people need and want to be in their offices downtown.
Also, let’s not forget that our municipal and provincial governments need more revenue right now and they are both making money through the land transfer taxes collected every time someone buys a house or a condo. Also, given the dire need for dollars right now, I can’t see any of these levels of government putting the brakes on the housing market as it’s one of the only bright spots in their bottom line right now.
As they say, when it comes to real estate; location, location, location. In the next few years, we will see how the location rule that has been disrupted by Covid lockdowns plays out.
In the meantime, we need to ensure our economy doesn’t continue to play out like the real life Hunger Games.
Thoughts? Questions?
Get in touch with me: 416.509.3286 or Davelle@BosleyRealEstate.com