We’ll preface right away here with today’s blog that the understanding that housing is among the most solid investments a person can make has been THE predominant understanding in this country for a long time. If we’re to look back across however many decades you’d like we’re going to see that’s held true.
Now today, however, there’s not much debate that the real estate market in Canada is weathering a storm, but it turns out that seeing the solidity of investing in housing is just as sound perspective as it’s always been.
One of the things we will say though is that one of the less-than-ideal aspects of the COVID storm is that there’s less of that proverbial pie to go around for realtors in Canada these days, and especially so for ones working in major metropolitan areas of the country.
It’s for that reason that the online real estate lead generation system we have here at Real Estate Leads comes more highly recommended than perhaps it’s ever been before. Putting the power of Internet Marketing to work providing you with bonafide client leads is something that can’t help but benefit your business at this time, and all the time for that matter.
But back to topic – we feel it’s important to be equivocal during this time when so many people are talking doom and gloom about the real estate industry, and it’s a good testament to the other side of the picture to point out what’s going to be continuing to motivate home buyers – the fact that real estate remain the best investment option for most people in Canada, and all up and down the social ladder.
The Soundest of Decisions for Investment
Owning a home remains the largest single investment for most Canadians. For this reasons it shouldn’t be surprising that fear over an economy that’s on its side right now is generating anxiety for a lot of people.
The CMHC (Canada Mortgage and Housing Corporation) recently predicted the ongoing pandemic and resulting freeze of the economy could push down the country’s average home prices somewhere between 9 and 18 percent, and the primary factor in that being job losses and uncertainty forcing many Canadians to the sidelines.
Further, the federal housing agency is predicting the housing sector will not return to pre-pandemic levels until around the time 2022 is drawing to a close. Yes, that’s concerning any way you slice it, but let’s continue on with what’s to be said here before we decide on a big-picture consensus.
We are seeing housing analysts pointing out vulnerabilities in big cities and the booming Vancouver and Toronto condo markets especially. There’s no getting around the fact there’s dark clouds there.
Now that’s of course going to be bad news for speculators or others who have recently purchased a home in a vulnerable region and were hoping to sell for profit in the not-TOO-distant future.
However, for most long-term homeowners able to maintain an adequate source of income, the very roof over their head is instead the best and safest investment possible. And that is no departure at all from the same way it’s been for as long as homes have been bought and sold as part of a real estate market in this country.
5% or More for More for Nearly 3/4 of a Century
Canadian house values have increased by over five per cent annually over 25-year periods going back the middle of the 1940s, after WWII ended. The 2008 global financial meltdown is included in that of course, and the concurrent predictions for a housing market collapse along with it truly never materialized.
Many homeowners have already benefited from the pre-pandemic housing boom, and for new homeowners, any decline over the next three years can easily be absorbed once the market gets back on track.
Now as far as potential homeowners are concerned, the next three years could present an affordability window into the residential real estate market. One of the biggest pre-pandemic risks in the housing market was the threat of higher mortgage rates, but we can now be fairly certain that borrowing rates will remain low for a long time.
It of course needs to be said that a home should never be the only investment in a retirement portfolio, as it’s unique from other investments in terms of risk. A short-term theoretical drop in the value of a home is not to be disregarded, but it checked by the understanding that homes are bought and sold far less frequently, which decreases the risk of making a price decline a real loss and allowing sufficient time for that investment to recover.
Intrinsic Value in Homes
What really sets a home apart from any other investment is its intrinsic value. A home is considered real estate. That means it is a real, tangible, asset and will always have a significant basic value, and by living in it you are changing the way you’re nurturing that investment asset in a positive way. You’re making it more resilient to market force dips and the like, and with its potential to increase in value you (or your client as might be the case here) are receiving a sort of dividend equal to the cost of rent if you didn’t own a home.
Then there’s the fact that home ownership also allows average investors to build equity by borrowing at a low interest rate in the form of a mortgage by using the property as collateral. Over time, that equity may be repurposed for borrowing at a low interest rate through a home equity line of credit (HELOC).
Last but not least and very specific to the ‘here and now’ – it’s quite possible that the biggest measure of the intrinsic value of a home comes from its newfound role as sanctuary during this global pandemic. The value of a home in a time when social distancing could become the norm for years to come may well prove to be immeasurable, and don’t think for a second that’s not going to be motivating individuals who don’t have that right now to make sure they do for the future.
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