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Real Estate Trends in Waterloo Region

Q1 2006

The boom in real estate in the K-W area seems set to continue. Listings are up: at 1752 they are 9.5% higher than March last year. Sales are up: 1464 for the quarter vs 1363 last year, and across all the price range from $175K to $750K. The dollar volume for residential sales is also up 16.2% to $338M vs $291M last year. The average resale home at $231,335 is higher than last year, as is the average single family detached home at $265,742. Median prices are also up about 9%.

So what isn't up ? The only decline was in single family detached sales, down 3.4% from last year to 374 units. Is that disturbing, considering everything else was up, and bearing in mind that some other markets are showing signs of softening ? Not at this stage. The local economy remains strong, and with all the other indications of robust activity there seems little point in worrying over a single figure that may be little else than a temporary blip.

Opening 2006

January and February are traditionally slow times for home sales. Better weather and longer evenings bring people out in March and April, looking to schedule their move in the June to August window when school is out. This year real estate activity, though weaker than the fall months, remained unseasonably strong in the opening of 2006. Milder weather may be a factor, but sales in January were about 1/4 higher than January 2005, and in February have kept pace with 2005. The growth in value terms is over 10% in both cases. There does not seem to have been the usual winter weakening in prices.

With interest rates remaining at an affordable level, a regional economy with the highest employment level in the country, and spring officially arrived, we can expect the market to remain strong and stable. Though listings remain flat at 1,552, the average price of residential properties sold in February is up over 12% to $233,015, and the average detached home is also up over 12% to $265,946.

Year of 2005

December through February is generally a quiet time for home sales since people seem to prefer to look for homes when the weather is nicer and the evenings are light. However this year, sales of homes were unexpectedly strong into the end of the year, perhaps a factor of the generally milder weather.

Supply and demand have kept fairly closely in step in the Waterloo Region. A sales to new listing ration of 50-60% is indicative of a balanced market, favouring neither buyer nor seller. Demand for resale homes has remained strong, with a sales to new listings ratio trending downwards but remaining generally in the 65-70% area throughout the year. This suggests somewhat of a seller's market, with rising prices, which is pretty much what we have seen. The trend is declining, but likely to remain above the critical 60% level for some time yet, suggesting strength in the real estate market for the next year or two.

This may be attributable to the growth of the region and the strong employment situation. Despite plant closures, the regional economy is robust and should be able to absorb the negative news. During 2005, regional home prices moved upwards by almost 8% over 2004 to $220,511.

November 2005

The numbers seem to confirm a continuing upward pressure on property resale values. Single family homes appear to be having the largest rise in sales volume but a smaller than expected price increase. In that particular sector there were 332 sales, up 4.7%, but with an average sale price of $248,618, only up 1.5%. The median single family home price was $230,00, up 5.5%, but barely more than half the 9.3% median increase for all sales.

What that suggests to me, and bear in mind this is only personal opinion, is that we are looking at a price surge in lower cost housing that has not yet reached the broader market. A lower end rise in prices, combined with the recent interest rate increase, should have several effects

• open a margin potential for a rise in rents, making investment property less unattractive
• instill fear in procrastinating potential buyers (if such people still exist), encouraging them to get into the housing market fast
• fuel the middle range with buyers who have sold their less expensive properties

October 2005

The numbers speak for themselves. Sales are up. Prices are up. Listings are up. Demand is strong, especially in the higher end of the price range. Projections for strong population growth and low unemployment in the Waterloo Region suggest demand for home ownership will remain strong. The seasonal decline in activity toward the end of the year is there, but only barely. It looks like the market could pause for breath a bit over the winter, as it usually does, but expect things to resume quickly in 2006 and continue strong through next year. Perhaps the unusual strength of August followed by the weakness last month was merely a reflection of the interest rate hike. People who have locked in a lower rate would be anxious to buy, causing a surge of activity, followed by a lull waiting for demand to fill in behind that crest. If so, it looks like it has filled, and we are back to business as usual, only more so.

September 2005

Residential real estate activity for the first three quarters of the year shows declining market strength. The numbers seem otherwise at first glance. Sales are over $1 billion compared to $974 million, 4865 homes have sold compared to 4768 and the average sale price is up by 7.5% to $219,645. There were 1833 active listings compared to 1682 at the end of September 2004, and 7,407 total listings YTD represents a 5.2% increase over 2004. There has been double digit growth in all price brackets over $200,000, with about 40% increase at the high end. With everything increasing, how can there be a decline?

Consider that if sales are up 2% and prices are up 7.5%, there must be a decline somewhere. There has been more activity at the very low end and the very high end, less in the range below $200,000, and overall less sales volume in dollar terms than the price growth might lead one to expect. What that means is reflected in the fact that the average days on market is up by 11.6 to 48, and that though listings are up by 5.2%, sales are only up 2%. It is taking longer to sell your home and the inventory of homes for sale seems to be growing. Since the percentage growth in active listings is less than the marginal growth of listings over sales, it also looks like more may be expiring unsold. September residential sales are down 1.4% over 2004 and down 16.5% over August (but remember, August was unusually active).

Does this mean that high prices were holding back buyers, who rushed late into the market, leaving September unusually depleted? Or does it look like things may be slowing down? If slowing then not a lot, and the market has been hot, so slower might be better. There seems little cause for alarm, especially in a prospering high growth area like Kitchener-Waterloo. The pace of housing starts is decining, so builders appear to perceive the market as becoming better supplied. Expired listings and lengthening days on market seem to suggest people may be asking a bit much. A 97.9% sale to list price ratio looks good, but that is after how many price reductions? With the heat possibly coming off, and the end of the year in sight, this appears more than ever a time to get your pricing accurate, and not a great time to go FSBO.

August 2005

Residential real estate activity in the KWREB area was uncharacteristically strong during August. Usually the quietest month of the warm half of the year, August sales were up 18.5% over last year and 14.3% over last month. Increases in overall sales volume of 28.1% over last August and 15.4% over July are indicative of ongoing price appreciation. A decrease in the median sale price of 0.2% suggests a very small increase in activity at the lower end of the market.

This exception to normal seasonal patterns reflects the strong economics and growth of the region, and significant local interest and confidence in home ownership. The spike in sales has been held partially in check by a 16% increase in homes available for sale over August 2004. Demand remains strong in all price ranges over $150,000, with the largest increase in the $300,000 to $350,000 bracket. The recent surge in energy prices may have a dampening effect on the market, but if so it should not last for long. See the notes below regarding Oil and Mortgages.

Oil and Mortgages

The forecast for oil at $100/barrel has been moved up to Q4 2007 due to the fact that many countries, particularly China are not as energy price sensitive as originally thought. Thirst for oil, coupled by demand growth exceeding supply growth is exepected to profoundly affect world economies including Canada's. High energy prices should soon restrict rising short term rates. This may also send long term bond yields to new lows, which suggests a different mortgage market for late next year. If the prime rate goes up to 4.75 in December then it should hold steady for most of 2006. Holding a variable rate mortgage and waiting for long term rates to come down before converting to fixed should remain a viable strategy for the coming year.

The negative impact of high nergy prices on global growth in 2006 will be positive for long term bond yields, so look for long term mortgage rates to come down. It is good news for the housing market when long term rates are low and first time home buyers can benefit from

1. The Variable Mortgage Strategy with heavily discounted front end loaded teaser periods converting to long term rates later, and
2. The Simple, No Worry Strategy of taking a long term mortgage at low rates

Expect hurricane Katrina to put the Fed in the US on the sidelines following one more increase to 3.75 for the year. The Canadian dollar at 84 cents combined with higher oil prices will do much of the Bank's tightening work, so expect prime to hold steady about 4.75 until near the end of 2006.

July 2005

A dollar volume increase of 2.2% and an average price increase of 11.5% over last year suggests an actual decline in homes sold during July - in fact about 7.7%, though sales to date for the year are still ahead of 2004. The price gains were mainly driven by the upper end of the market with sales of homes over $350,000 up by almost 70% despite the decline in general activity.

An increase of 20.2% in active residential listings suggests there may be a change to less of a sellers' market, but the strengthening supply of available properties should help to keep the market strong for the rest of the year. As well, the excellent financing rates which are still available help to keep home ownership affordable. We could reasonably expect the upper end of the market to maintain strong pricing and volume for some time to come.

June 2005

The first half of 2005 has seen record sales with a 2% increase in sales and 9.4% increase in dollar volume. Low interest rates, strong market and stable economic conditions have combined to create a very favourable situation for residential sales. The most significant feature seems to be the increased activity in the higher end of the market.

Activity for June is up over last year and the supply of active listings is strong. We hope to see July continue the these trends, though the summer is a traditionally slow time for real estate sales. Housing starts are up significantly over last year in Kitchener and Cambridge so far, though Waterloo languishes. The greater part of this activity is in multi-family housing. Single detatched housing starts are down for the year everywhere but in Cambridge. This runs contrary to the general situation, with housing starts declining across Canada. According to CMHC this trend is expected to continue though 2006. It would seem that the general economic strength of Waterloo Region is helping to maintain growth and housing development in the area.

Other Statistics

If you would like additional information on real estate statistics or trends for the Waterloo Region, please feel free to contact Dot. She can provide much more precise information for your particular price bracket and area, detail which it is not practical to provide on this web site.

Disclaimer: Information presented here has been obtained from sources which are believed to be reliable, but is in no way guaranteed. Commentary and opinion has been provided by John Turner, Dot's husband, who is also a Realtor. Contrary to popular opinion, John does not know everything. In particular, he does not represent himself as knowing the future, even with regard to real estate. No guarantee is implied or possible where projections of future conditions are attempted. Opinions expressed here are John's own and are not intended to constitute financial advice. If you act on any information or opinion expressed on these web pages you do so entirely at your own risk.