Why Real Estate Prices Will Likely Rise
You may have read the recent news the number of residential homes sold in April dropped over 40% compared to 2021. While interest rate hikes might be slowing things down, we feel it's important to share we don't feel there will be a significant decrease in prices over the long term. On the contrary, there is solid evidence backing up long-term price increases.
Greg Romundt, Centurion President & CEO, in his most recent Portfolio Manager's Corner, makes the case real estate values will continue to rise. While his article specifically calls out residential rental units, it won't take you long to realize this applies to single family residential homes too. ACCESS ARTICLE HERE
One of Greg's arguments has been included in my previous messages: immigration will put further pressure on real estate values. The Government of Canada has set a goal to add over 430,000 immigrants to the population but is already 1.9 million units short of residential housing stock. In ten years, without any changes, that shortfall rises to more than 3.4 million units, assuming 3 people per household. It looks as if going into homebuilding is a good idea if you have the capital and are a good project manager!
There are other factors in his rational. We highly recommend reading the newsletter which cites higher wages, inflation, and commodity prices in the next decade. Another, less talked about factor is the concept of "onshoring." This related to moving the production of some goods and services home, and governments will likely set rules for which types of products must be built on home soil, to protect national security interests.
So while there's been a decrease in units sold across most markets, and homebuyers are expecting price decreases in the short term, it's highly likely we are at the beginning of cycle where prices increase.