Are you investing for ten months or ten years? Real estate is profitable over the long term. Analyze trends over the long term rather than the short term. I will comment on the three main factors that will drive prices and rents higher for the next decade.
Lower interest rates and strong immigration increase demand. In the long term, there will not be enough properties to meet demand.
The prices of single-family homes in Quebec have shown a remarkable rise over the past 50 years. There have only been two declines, in 1995-96 and 2022-23. Predicting increases therefore seems to go without saying.
But if you analyze my text well, you will understand between the lines that it is plausible that the average increases will be higher than in the past. Try to form your own opinion.
Lower interest rates
It is the interest rate that most affects demand. With the significant and rapid rise in the key rate since March 2022, several buyers have withdrawn from the market. When rates drop, those buyers will come back in droves.
Over the long term, I have confidence that the Bank of Canada will succeed in bringing the inflation rate back to around 2%. Interest rates should therefore fall.
We will never see mortgage rates at 2% again, unless we experience another major event like the pandemic, which requires that we stimulate the economy with energy.
Strong immigration
The political arena likes to debate on quantified objectives. Let them argue about quantums. No matter what number you aim for, it will be a high level.
Boomers are retired or at the end of their careers. Over the next decade, we will have low unemployment and labor shortages are expected to persist.
The debate is not about the necessity of immigration. But a fundamental issue is the lack of planning for their needs, including housing. The majority are tenants at first, but many become owners over time.
Shortage of housing
Under Centris, the total number of buildings for sale has decreased from 2015 to 2022. It is difficult to make an accurate prediction. For the next decade, I expect the supply to increase, but moderately.
CMHC estimated in June 2022 that the level of construction would have to double for the market to be in equilibrium. The level of construction has since declined.
The reason for this drop is the rise in interest rates and building materials. As interest rates will fall, residential construction will pick up, but not at the level recommended by CMHC. There are too many barriers to construction.
Will the municipalities revise their old zoning by-laws to really promote density? Will licensing stop taking years? Will we stop charging promoters fees, taxes and royalties? Are we going to welcome more immigrants who have the skills to work in construction?
Will the three levels of government work together instead of passing the buck?
Just as with the climate crisis, politicians are slow to listen to scientists and act effectively to counter the housing crisis.
A decade of growth
No one can accurately predict what will happen. But everything indicates that we are headed for sustained growth in prices and rents.
There will be insufficient growth in construction.
The growth of the housing crisis is difficult to avoid.
As soon as interest rates fall, demand will rise quickly while supply will rise only slowly. Building takes time.
Many owners will rejoice at the price increase. Investors will benefit from substantial rent increases. First-time buyers and tenants will be most disadvantaged. Those who can, buy even if it means compromising.
Listen more to the forces affecting the market, namely demand and supply, than to the words of politicians.
Source : Article by on the lesaffaires.com on the 21th june of 2023
Link : https://www.lesaffaires.com/blogues/jean-sasseville/dix-ans-de-hausses-en-immobilier/641893
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