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Reports of Canada’s housing prices declining have been rolling in for a few months now. However, that does not mean it is time for you to panic or worry, instead it is time for you to prepare.
Economic downturns are a fact of life. As the saying goes, ‘what goes up, must always come back down.’ However, that does not mean that things – such as housing prices – are certain to stay down once they get there.
Low interest rates in recent years resulted in an aggressive real estate market that grew dramatically month over month. Now, things have begun to cool off and housing prices have begun to drop, but that does not mean your investments are in danger. It simply means you need to get ready for what is coming next.
So, before we dive in, if you want to take the first step to get prepared for the market ahead today, click the link below for a free strategy call with our team at LendCity.
Housing Prices Been Unsustainably Hot For a While Now – Now Things Are Changing
It is no secret that housing affordability in Canada has been a problem facing the market for a while now. This issue has been fueled by multiple factors such as increased unemployment during the COVID-19 pandemic, historically high inflation, as well as the reduced supply of housing available for Canadian residents to buy and rent.
Meanwhile, attempts to combat unaffordability through historically low interest rates only contributed to the increase in Canadian housing prices due to the increased buying power shared across the market allowing people to participate in bidding wars.
However, it is important to remember that even with the market beginning to cool, housing prices today are still higher than they were in 2020. So while you may see headlines talking about a ‘historic downturn,’ the truth is that when you take a step back and look at the bigger picture, real estate investors and homeowners who have been in the market for years are still in a better position then they were two years ago.
As for the buyers who purchased properties even earlier, they are in an excellent position today compared to when they started. For perspective, ten years ago the average selling price for a house in Canada was $497,298. At the time of writing this, the current average purchase price is $629,971. That means in the past, decade housing prices have gone up by approximately 26.7 per cent.
Historically Real Estate Always Comes Back Up
It should not be surprising that despite the current downturn, real estate is still stronger today than it was in the past. After all, one of the primary appeals of real estate investing is the fact that property values always trend upwards when you look at the bigger picture.
Buy and hold real estate investing is a long-term investment strategy, so while downturns may impact the immediate value of a property, if you are able to stick it out and avoid selling until the market recovers, you should be able to walk away from it stronger.
Notably, the 2008 recession marked a low point for Canadian real estate. However, within two years, most Canadian markets had already recovered and reached the same level they were at before if not greater. One of the prime examples is the housing market in Toronto. In November 2008, the average cost to buy a house in Toronto was $368,582 – approximately 6.5 per cent lower than the average of $393,747 seen in 2007. However by November 2009, housing prices had increased to $394,474.
This trend has held true for every economic downturn in history, so it is a safe bet that investors who are able to hold on to their properties and stick things out are going to wind up experiencing the same recovery.
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Be Cautious With Your Investments During a Downturn
Now, while it is reasonable to assume that holding on to your investments during a recession will typically allow you to recover once the market resurfaces, that does not mean you can afford to be careless.
At the end of the day, the investors who lose the most during a downturn are the ones who are not prepared and take unnecessary risks too soon. If you have your eye on a high-risk property that is going to make most of its money in appreciation while generating a negative cash flow, take the time to consider whether now is the right time to make that sort of investment.
While it may sound great to buy a property while it is value is low, you also need to consider which way the market is trending. If properties are continuing to go downward and have not begun to bounce back, chances are you could potentially make the same or similar investment for at lower housing prices later on with less immediate risk by allowing the market to start to rebound.
Get The Lowest Available Interest Rates to Build Sustainable Investments
Now, none of this is to say that you cannot buy real estate during an economic downturn. In fact, recessions can be an excellent time to buy real estate if you are looking to secure a cash flowing property at lower housing prices. However, you need to be careful and make sure that you are taking the steps to make your investments sustainable, and that starts with a great mortgage.
That is why the team at LendCity is dedicated to helping our clients secure the best available interest rates with the best monthly payment plans for their investments every single time.
So, if you are ready to invest or have any questions about buying real estate during an economic downturn, give us a call. Our office number is 519-960-0370 or you can apply online at LendCity.ca today. Alternatively, click the link below to book a free strategy call with our team today.