Will the real estate market crash in London, Ontario?
Predicting if and when the Canadian real estate market will crash has become almost a national sport. For years, pundits have warned that real estate prices -- especially in hot markets like Southernwestern Ontario -- have peaked and are about to come crashing down at any minute. So far, those predictions have failed to materialize.
Even after the real estate market contracted last year at the beginning of the Covid-19 pandemic, prices rebounded almost as quickly as they fell. In fact, since then the real estate market has soared, with London, Ontario, real estate prices rising faster than almost anywhere else in the country.
This leaves many people wondering if 2021 is the year when the housing market finally takes a breather -- or even comes tumbling down to Earth. Let's take a look at whether real estate prices are likely to fall in Southwestern Ontario in 2021 and beyond.
London, ON, housing prices keep rising
Currently, there's no sign that housing demand in London, ON, or throughout Southwestern Ontario is slowing down. In April, the London and St. Thomas Association of Realtors (LSTAR) reported that 1,231 homes were sold in London and St. Thomas. That's the highest number of home sales on record and it marks the eighth month in a row of record-breaking sales.
In fact, demand has become so heated that it is spilling over into rural areas. In Huron and Perth counties, for example, the average house price is now over $576,000, an increase of 61 percent from just a year ago. Total home sales in those same counties also doubled.
Will real estate prices fall in Southwestern Ontario?
While those soaring prices are good news for sellers and homeowners, they do leave many people wondering whether the market has become unsustainable. There's no sure answer and plenty of previous predictions about a Canadian housing crash have all come to nothing.
On one hand, some analysts say that Toronto is one of the most overvalued property markets on the planet, driven in large part by super low interest rates. A collapse of the Toronto market could potentially bring down surrounding regions, including London.
But there are good reasons to think that prices will continue to rise, at least in Southwestern Ontario. For one, mortgage rates are still extremely low. While it's likely that interest rates will begin to rise again as the economy reopens, they are still likely to remain near their historically low levels for at least the foreseeable future.
Also, while some people describe the real estate market in Southwestern Ontario as being in a bubble, that's not quite an accurate statement. A bubble implies that prices have become divorced from fundamental economic factors. In London's case, however, real estate prices come down to simple supply and demand: there are too many buyers for too few homes.
New homebuyers are streaming into Southwestern Ontario. Some are former Toronto residents who have decided to relocate thanks to Toronto's high housing costs and new opportunities to work remotely after Covid-19. Plus, Southern Ontario -- including London -- continues to be a top choice for new immigrants to Canada.
In other words, there will continue to be a lot of buyers in London, Ontario, which makes the rapidly rising housing prices make sense. It also means that a dramatic crash in housing is unlikely.
Could housing prices slow down in London, Ontario?
While a housing crash is unlikely, it is worth considering whether we can expect a cooling off of the market. This is a much more realistic scenario, with many analysts believing that it's unlikely real estate prices will continue to post their eye-watering double-digit gains indefinitely.
The Canada Mortgage and Housing Corp. (CMHC), for example, predicts that demand for houses in London will slow down by next year. That should lead to lower price gains and potentially slightly reduced resale values.
However, the CMHC is not predicting a market crash. Instead, it is merely predicting price gains to slow down.
For example, it predicts that the average annual resale price for 2021 in London will be between $570,000 and $620,000. While that is a bit lower than the average resale price of $625,500 set in the first four month of 2021, it is well above 2020's average of $483,000. Plus, the CMHC predicts that prices will continue to rise gradually in 2022 and 2023.
The slowdown is largely because the recent rapid gains in prices have reduced the savings that buyers from Toronto get when they move to London. That said, London's average home prices are still well below Toronto's, so demand for homes here will continue to be high, just not as high as they have been over the last year.
What does this mean for buyers and sellers?
If you're looking to buy a property, knowing that housing prices are likely to slow down is welcome news. A more stable market makes it a lot easier to purchase a property without worrying about where prices are going to be month to month. And the fact that prices are unlikely to crash is equally good news for when you eventually decide to resell.
If you're a current homeowner in London, ON, then you may want to take the news that prices are likely to cool off as a sign that now may be a good time to sell. With the market potentially about to peak or plateau, the current moment may be a golden opportunity: demand is still very strong and you'll likely be able to get a great price on your home.
A good next step to see how much you could potentially net from your home sale is to talk to a real estate solutions company. They can provide insights into the local housing market and, if you're interested, buy your house off-market through a private sale. That way you can get a great price for your home without having to go through the hassle of listing it.