It has been over three years since the onset of the COVID-19 pandemic, and yet the ripple effects of inflation, rising rates, and economic uncertainty have continued to shape the real estate industry in Canada. In times like these, it can be difficult to predict with accuracy where the Canadian housing market will go next, especially when trying to determine how to invest in individual properties. Whether you are a prospective home buyer , or looking to sell, our guide aims to equip you with the knowledge and tools you need to navigate these turbulent economic waters, and set you up for success.
Put simply, real estate uncertainty refers to the lack of predictability or clarity regarding future conditions, trends, or events that can impact the Canadian real estate market. This uncertainty can manifest in various ways, including fluctuations in property values , changes in interest rates, shifts in supply and demand, economic volatility, and regulatory changes.
Since real estate uncertainty ebbs and flows over time, the best way to understand the current state of the market is by first understanding the underlying causes of change:
Given the unpredictable nature of the 2023 Canadian housing market, you may be wondering how to safeguard your investments from potential losses. Luckily, there are a few simple strategies you can implement to hedge your investments against market risks.
The first, and most important, strategy is to act under the premise that knowledge is the number one tool at your disposal. The more research you conduct, the better prepared you’ll be to make decisions as the market changes around your investment. It is a good idea to stay informed about local and national real estate trends, economic indicators, and market forecasts. You should aim to understand the factors that influence the real estate market in your area, such as job growth, population changes, and infrastructure development.
Another popular strategy is to diversify your investment portfolio. Choosing the best property to invest in can sometimes be a gamble. The price of a single commercial property can vary greatly based on the specifics of the build, neighbourhood, local politics, and more. It is also very difficult to predict the rate at which you can attract prospective renters, or the prices they might be willing to pay. If you are hesitant about putting all your eggs into one basket, you can consider splitting up your investment between real estate (tangible assets) and other investment types (stocks, bonds, index funds, etc.) . If you want to invest strictly in real estate assets, you can diversify across asset type (e.g. commercial retail vs. commercial residential), geography, financing plan, or more.
Regardless of your personal asset management strategy, it is crucial to have a contingency plan. If your investment’s potential returns hinge on your ability to secure a consistent stream of renters, what do you do if no one wants to rent anymore? If your commercial investment is a retail store, what do you do if the value of your property suddenly drops? Having pre-prepared answers to these questions can sometimes mean the difference between profit and heavy loss.
Now that we have covered the basics, here are some last few tips to help you along on your path to success:
Given the unexpected rate hikes that were seen in both Canada and the US this year, it is clear that the battle against inflation is not yet won. Given the turbulent economic context of the larger market, it is unlikely that we will see significant drops in home prices. In fact, most equity researchers predict that the first rate-cut will not occur until April 2024. By then, hopefully inflation will have cooled, and home prices will have stagnated.
Predicting the future of real estate in Canada, like any market, involves some degree of uncertainty. Several factors influence the real estate market, and they can change over time, in ways we might not yet be able to predict. However, factors such as the continuing threat of wildfires, the overcrowding (and increasing cost of living) of urban centres, and the lack of progress in solving the affordable housing crisis all point towards a need for nation-wide systematic reform in the real estate market.