The graph below is truly astonishing and represents the most rapid run-up in home prices, in the shortest amount of time, that I’ve seen in my 24-year career! The elevated red line represents a substantial increase in equity for you as a homeowner. The orange line represents Average Sold Prices while the blue line represents the number of transactions across Canada.
So what caused it?
A perfect storm brought about the rapid increase, much of it pandemic driven that included extremely low-interest rates to bolster the economy, a sudden end to travel which left a lot of disposable income in people's pockets, and a change in work rules allowing many people to work from home and thus, an exodus to the suburbs to escape the dense intercity population. In short, demand skyrocketed while fewer people were putting their homes on the market due to COVID. For the few properties that were available, bidding wars were rampant, driving up prices. That is still the case as I write this article. June inventory was down 31% from what we had in March.
Believe it or not, you as a homeowner have a lot more money this year than you did last year. So what do you do with it? If you’re wishing to “right-size” and stay in the area, you won’t really benefit since you’ll pay much more for your new property. If you’re moving out of the area you will benefit from the increased equity. If your home needs some updating, this is a good time to pull some equity out and make the improvements that will pay off when you do sell. Have you thought of owning an investment property? Some of our clients are pulling the downpayment for an investment home out of their existing property. What about a vacation property?
It can be hard making decisions about equity; so much so that many people will simply leave it sitting there doing nothing; an investor’s nightmare. Think Rich Dad, Poor Dad. Money sitting idle is actually working against you.
The chart below shows the average price tend in the GTA since 1994 and answers the question of “when is the best time to buy;” the answer being, five years ago. Can prices continue to increase? The obvious answer is they can and they will. Toronto is not the most expensive city in the world and Durham Region is not the most expensive region in the Greater Toronto Area.
The rental market remains tight. As for an investment strategy buy and hold still leads the pack. Buying a cash-flowing legal duplex or turning a single-family residence into one remains the most popular, followed by waterfront vacation properties. If you’re wondering how to turn your stagnant equity into a cash-flowing investment, we can help. If you don’t want to be a landlord with all the duties involved, hiring a property manager may provide relief from taking middle-of-the-night calls from tenants. Give us a call to discuss!