Metro London Ontario Home Price Forecast - Apr 2021
HIGHLIGHTS
The London real estate market is going ballistic in every category.
Mortgage rates are rising from historic lows, and unemployment is still high.
Current demand and price increases appear to be primarily driven by the effects of pandemic-related restrictions - people are desperate for more living space. Often buyers are moving away from the cities so they can afford a larger home. It is unclear if this will persist after the pandemic is over.
We are in the midst of the third wave of infections, but luckily this is probably the last wave.
This article covers:
What is the state of the London property market?
Where are prices headed?
Should investors sell?
Is this a good time to buy?
1. What is the state of the London property market?
Home Price Overview
Metro London prices have accelerated significantly in the past few months, which has pushed more potential home buyers out of the market.
During the pandemic, people upsizing were the first wave of buyers. They needed more space to work from home and segregated spaces for two parents to work and kids to learn. Following the acceleration of house prices (and weakness of condo values), many renters began to fear missing out on another home price rally. In late 2020 and early 2021, first-time homebuyers wanting to build equity have jumped into the apartment market.
A recent CIBC survey found that more than 20% of people currently working from home will be returning to the office. As well, we expect the vast majority of students to return to their schools full-time. This points to a possible bounce back to the migration to the outer suburbs, exurbs, and cottage country. An important question raised by the current demand is:
If work-from-home and school-from-home are temporary market drivers, what will happen when the pandemic is over?
This uncertainty is a core component of risk, and we delve into this later.
People currently planning to sell a home will take heart because home values are at all-time highs and want to push ahead and sell during the pandemic.
People planning to buy a home could wait for a possible market correction, but there’s no guarantee that prices will be lower by the end of 2021.
The recession, high unemployment, and the eventual lifting of restrictions are now the primary sources of uncertainty for home values. Some pundits predict consumer behaviour similar to the ‘roaring twenties’ post-pandemic. Canadians who prioritize newfound freedom, nightlife, and travel will feel less hurry to go home shopping.
The real estate statistics for Metro London include St. Thomas, Middlesex, and Elgin Counties.
Metro London Detached House Prices
House price growth in Metro London has accelerated into 2021. The “soft landing” that government policymakers were targeting has not materialized, nor have promises of a ‘market crash.’
We believe politicians are hoping to guide the market toward a typical annual real estate cycle with price growth in the range of 1 to 3% annually – in line with income growth.
The recent aggressive and accelerating price growth across Canada has triggered government intervention. In April, the bank regulator proposed to increase the mortgage stress test by roughly 0.5%. The change would go into effect in June 2021.
Metro London New Construction Home Prices
London pre-sale and new construction prices have been rising steadily.
It seems unlikely that the market can sustain record house prices for the next 12 months based on economic fundamentals. So far, buyer sentiment has overwhelmed the core fundamentals.
Market Risk
House price growth in London has been very high. CMHC performs a quarterly risk assessment of various Canadian markets. They don’t cover London, but they do report on Toronto and Hamilton. Hamilton is the market most similar to London, and CMHC has assessed Hamilton to be at high risk of a price correction.
Metro London Condo Apartment Prices
Metro London condo apartment prices are also rising, though the Benchmark price has levelled off since the summer. Today, a benchmark London condo is still affordable without help from family.
With more people working from home, we expect developers will begin marketing larger (i.e., 2 and 3 bedrooms) apartments to meet buyer preferences. As the supply of more generous floor plans comes to the market, it may depress the values for small floor plan condos.
At Mortgage Sandbox, we would like developers to build 4 and 5 bedroom condos because:
Not everyone can afford to buy a house for their family.
Canadians who now work from home need more room to segregate workspace from living space within their homes.
Many Canadians with longer working hours find it challenging to stay on top of necessary house upkeep (i.e., mowing lawns, clearing eaves, shovelling sidewalks).
Many people prefer to live in higher-density neighbourhoods with all the essential amenities within walking distance.
2. Where are London home prices headed?
There is a lot of uncertainty in the forecasts for 2021 and 2022. Many of the forecasters we've surveyed have different expectations for:
How long will the third wave of COVID-19 infections and associated restrictions last?
Will Canadians be able to fully return to their offices and classrooms in September or December 2021?
Will the federal government succeed in achieving its aggressive immigration targets during a pandemic and with high unemployment?
Since the mortgage payment deferrals expired in October, will the anticipated distressed home sellers appear in the housing market?
As a result of their varying assumptions, some forecasters expect prices to continue rising, while others expect are more likely prices to drop.
For example:
For example, Re/MAX predicts London prices will rise 2% in 2021.
The Canadian Real Estate Association anticipates prices across Ontario will rise 16%!
Moody’s Analytics, which develops mortgage risk software for Canadian banks, predicts a modest 6.5% drop in Hamilton and a 3% drop in Ottawa. London may fall somewhere between the two.
Moody’s didn’t attempt to pinpoint the timing of the decline in values. However, our research shows that most past declines in Canadian home values have begun between May and July. Traditionally, there is less supply (fewer listings) between February and May, which puts upward pressure on prices.
CMHC, the government housing agency, predicts a peak-to-trough drop of between 9% and 19%. They expected government aid and mortgage deferrals would cushion the blow in 2020, that the market would be impacted in 2021 and then recover in 2022.
There is no consensus among economists. Market sentiment and government stimulus have led to price acceleration and record home purchases even though most economic fundamentals have faltered.
CMHC sells insurance to banks to help limit their losses if a mortgage goes bad, and Moody’s Analytics sells software to banks to help them assess the risk of their mortgage portfolios. These two forecasts help paint the worst-case scenario. There is downside risk in the market.
Curious how we arrive at our forecast range? Check out our full assessment of the five factors that drive these forecasts. These five forces help explain why several forecasters are anticipating price drops.
READ REPORT: 5-FACTORS DRIVING ONTARIO PRICES
At Mortgage Sandbox, we provide a price range rather than attempting a single prediction because many real estate risks can impact prices. Risks are events that may or may not happen. As a result, we review various forecasts from leading lenders and real estate firms, and we then present the most optimistic estimates, the most pessimistic prediction, and the average forecast. Do you want to learn more about real estate risk? We've written a comprehensive report that explains the level of uncertainty in the Canadian real estate market.
Our forecast inputs:
3. Should Investors Sell?
Once the pandemic lockdown pressures are released from a seller's perspective, we are left with more economic downward price pressures.
Now might be a better time to sell than in two years, and the annual real estate cycle usually favours sellers in the first half of the year.
Sellers should always consult a mortgage broker early to prioritize flexible loan conditions and reduce the risk of mortgage cancellation penalties. Find out more about the benefits of a mortgage broker.
Planning to Sell? Check out our Complete Home Seller’s Guide.
4. Is this a good time to buy?
It’s hard to say, prices have been rising, but there is a downside risk. It seems unlikely that prices will be lower in December than they are today.
Prices are still trending upward, but Coronavirus containment efforts are inflating prices. Once vaccinations are rolled out and restrictions are lifted, prices will likely soften in the second half of 2021.
Regardless, the annual real estate cycle usually favours buyers in late summer.
The wild card is the Coronavirus. At this stage, it's difficult to determine how much it will impact the market.
If you are thinking of buying, be sure to drive a hard bargain and pay as close to market value as you can. As well, when it comes to financing, don't bite off more than you can chew.
Planning to Buy? Check out our Complete Home Buyer’s Guide so we can walk you through the end-to-end process and get you ready to buy your new home!
Here are some recent headlines you might be interested in:
Hot real estate market causes problems for some renters amid COVID-19 pandemic (CTV, Apr 21)
George Fallis: It's a housing bubble in Toronto, not a supply squeeze (Financial Post, Apr 1)
From first time buyers to luxury homes, Canada's real estate market is on fire (CTV, Mar 30)
Canadian Immigration Interrupted: A Look Ahead Into 2021 (RBC Economics, Feb 16)
Douglas Todd: Condo prices in border-lockdown limbo in Vancouver, Toronto (Vancouver Sun, Feb 4)
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