Long term and local – key factors to consider in real estate

If there’s one rule of thumb in real estate that you’re likely familiar with, it’s location, location, location. But during these more challenging times, it’s important to add a 1a, and maybe even a 1b – long term, and local.

There is no shortage of superficial headlines and clickbait-oriented content predicting impending doom, bottoming out and real estate bubbles. It’s true, as a number of stories in this issue discuss, there are clearly some short-term challenges – namely, declining sales and even prices, juxtaposed with rising interest rates, inflation and other economic challenges.

Long-term view

That’s why it’s paramount during times of any uncertainty to view housing over the long term. Historically, there aren’t many investment classes that outperform real estate over a period of, say, five to seven years.

Take, for example, the latest from the Toronto Regional Real Estate Board (TRREB).

“Home sales have been impacted by both the affordability challenge presented by mortgage rate hikes, and the psychological effect wherein homebuyers who can afford higher borrowing costs have put their decision on hold to see where home prices end up,” says TRREB President Kevin Crigger. “Expect current market conditions to remain in place during the slower summer months. Once home prices stabilize, some buyers will re-enter the market despite higher borrowing costs.”

'Slowing' growth

While TRREB focuses mostly on the resale market, this is a pretty succinct and accurate summary of current overall conditions.

Consumers tend to react when they hear news of declining sales and prices, but it’s important to keep things in perspective. The average resale price for a detached home in May 2022, for example, was $1.54 million, up 9.5 per cent from the previous May. For semi-detached, the corresponding numbers were $1.2 million (13.2); for townhomes $977,194 (12.7); and for condos $770,894 (12.9 per cent). Those year-over-year price growth stats are extremely healthy, even if slowing. For June 2022, the year-over-year percentage growth rates, respectively, did “slow,” to 3.5, 6.4, 8.6 – and, notably, for condos, still the highest growth rate of all – 9.3 per cent.

If this “slowing” growth is concerning, you might want to look at the performance of other investments over this period.

Hyper local

The other key point is that real estate is local – hyper local, in fact. It’s easy to interpret headlines assessing the “Canadian housing market” (of which there really is no such thing) as negatively widespread. But what’s most important to you is what’s happening in your market. When you buy a home or condo, you don’t buy a national market. You buy one property, on one street, in one neighbourhood, in one city and region.

Forget the national headlines. Examine what’s happening in your market and economy.

And on those scores – looking long term and local – Ontario, the GTA and Toronto are all well-positioned.