New Year’s Eve has come and gone. We’ve swept up the confetti and glitter and are back at work. It’s the perfect time to take a look back at the market in 2015 and look ahead to 2016.
If you want the short version, 2016 is looking like a good time to buy a home. Interest rates are low and will very likely stay low. At the same time, overall average sales are rising so anyone selling a home should still make money.
In Ottawa we have a fairly balanced market with things leaning slightly in favour of buyers. The exception is condos – it’s definitely a buyers’ market there.
Of course things are always more complicated, so let’s take a look at what’s been happening and what’s taking shape for the year to come.
The 2015 Real Estate Market in Review
In 2015, average housing prices grew in Ottawa by 1.4%.
What People are Buying…and Spending
2015 was a year of downsizing for buyers. Fewer people were looking for large homes (2,500 square feet and up) and very large homes (3,000 square feet and up). Average price tags on homes ranged from $375,000 – $400,000. In general people wanted to spend less on homes and more on their lifestyle.
Row houses were extremely popular, with bungalows seeing less in demand. If we look at who was doing the buying, it’s easy to see why.
The People Driving the Market
There are three groups of people having the strongest influence on the market today: boomers, millennials, and single women.
Canada’s baby boomers are in their late 50s and early 60s, and they’re one of the largest age groups in the Canadian population. Right now they’re empty nesters but still very active. They’re looking for smaller “last homes” averaging around 1,600 – 2,000 square feet. Boomers don’t have trouble with stairs, which explains the reduced demand for bungalows, but they’re leaving their large family homes for smaller houses.
Millennials are also a large part of the Canadian population. They’re staying in their parents’ homes longer, so the average age of first time buyers is rising. We’re seeing a lot of first time buyers at age 27 or so, when we used to see them much younger.
Single women aged 38 and up are having a huge influence on the market as well. They may be divorced or never married, and they may have children or not. But they often have good jobs and they’re interested in having their own homes and building equity before they retire.
Politics does have an effect on the market; there always seems to be a bit of a lull during an election. People want to wait to see what will happen, and they hesitate to make big decisions like buying a home.
Last October’s Liberal win seemed to encourage home buyers. In general, when the Liberals win it gives confidence to the middle class, especially in Ottawa with all our government workers. If it had been a conservative victory, it would have been a confidence builder for the wealthy.
It’s still too early to tell how government spending patterns will affect Ottawa’s employment rates (don’t forget that early spending may lead to cuts later on). In particular, military/DND transfer numbers are to be determined.
The news has been full of reports on falling oil prices and slow economic growth overall. The important thing to remember is that here in Ottawa, we tend to be a bit insulated from a lot of the economic factors that can affect the markets in other cities.
Falling oil prices have definitely had a bad effect on Calgary and other cities dependant on oil (according to the CMHC). And while our hearts go out to them, thankfully we haven’t seen an effect on our housing market. The Bank of Canada has responded by keeping interest rates at 0.5%, which meant most people continued to buy homes.
Minimum Down Payment Increase
The new 10% down payment rule only affects properties valued at over $500,000. Less expensive properties are staying at 5%. This didn’t have much of an impact, as it’s well above the average price tag for homes.
The increase is not entirely a bad thing. When people have invested their hard-earned cash, they’re much less likely to walk away.
A Warm December
Our almost spring-like weather in December 2015 meant people’s hearts were turning to thoughts of new homes. Our sales were up by over 16%, whereas December 2014 saw very typical numbers.
You can bet that if there’s snow on the ground in December, people are thinking about the holidays. But the fact that there was green grass everywhere meant that we could list homes and show photos of landscaping and exterior details. If you’re wondering if you should sell your home this winter, we have some advice for you.
Looking Ahead in 2016
While it’s still very early in the year, we can take a look at what’s happening and make some educated guesses about how the real estate market will perform.
To start, the CMHC projects a similar housing market to last year’s for 2016, with growth around 1.2% – 1.4% in Ottawa. As mentioned, Ottawa is fairly insulated from a lot of the financial ups and downs the rest of the country is seeing.
China’s economy has seen a consistent downturn in the last few quarters, and this means less demand for Canadian exports overall, in spite of a low dollar. We’ll have to see what kind of impact it makes.
So far, RBC has raised interest rates on mortgages, but before you panic, we are very confident that rates won’t go up much in Canada. It’s all a matter of perspective: remember the 90s, when people were paying upwards of 7% on mortgages? There is simply too much government and individual household debt to risk letting interest rates get too high.
We see a little bit of interest as a good thing. It ensures that anyone buying is way more likely to be responsible.
From the Investor’s Perspective
The first thing you need to know about investing in real estate for 2016 is that there are no flip properties left. Yes, there are still tons of shows about flipping on HGTV and other networks, but with rare exceptions it’s not a flipper’s market. The margins just aren’t there anymore.
There are still great investments to be made, but you need to expect to hold on to those properties for the next few years.
There are some other challenges facing investors right now. Builders have been saturating the market with new homes, especially condos. The vacancy rate is fairly high in Ottawa on new builds at 3.7%, with 472 newly built units unsold in Ottawa as of fall 2015.
Rental vacancies in Ottawa are also rather high, so that means owners have to be careful about the bottom line, as rental fees are dropping overall in the competition for tenants.
Be warned, however, that it’s still important to do your due diligence when considering new tenants. The Landlord-Tenant Act is weighted very heavily in favour of the tenant right now, and it can be really difficult to get rid of problem tenants once they’ve moved in.
The Bottom Line
While the news about the economy isn’t stellar, things are still looking steady for Ottawa’s housing market. Over the past decade and a half, there have been some economic corrections but there has always been a recovery within 2 years. The only time things were really bad for housing in recent memory, was the 80s, when mortgage interest rates peaked at over 21%.
If you’re ready to buy a home, and you know you can afford it, you should feel safe going ahead. There are always going to be economic variables and fluctuations, so it’s important to think clearly about the whole picture so you don’t come away feeling the sky is falling. After all, you don’t want to miss out on the right opportunity.
Selling Partner/Sales Representative
Lisa keeps a watchful eye on the market for her clients. She has over 12 years’ experience as a real estate agent, and is also real estate investor herself. A top listing agent and negotiator, Lisa believes in keeping her clients fully informed at all times. She loves helping homeowners climb the property ladder and investors build up their property portfolio. Since 2003 Lisa has been working with a diverse collection of clients, from first time buyers and sellers to seniors. High end properties and estate sales are also a specialty. When she’s not busy helping clients, she loves spending time with her family.