Thursday, 22 May 2014

Does a National Real Estate Market Truly Exist?

People love real estate statistics. And I'm included in this group of people. It's almost a leisure activity for me like playing tennis or watching Game of Thrones. Still, as with any statistics, you always should be a little skeptical of how the statistics come about. I often find there are many reasons to be doubtful with the real estate statistics from a national perspective. It's just too simple. Not every city and neighbourhood function in the same way all over Canada.  Often, I'll hear things like "The average price for a Canadian home went up such and such a percentage point last year." The truth is, markets across the country function in very different ways. A sweet bungalow in a declining small town in New Brunswick does not function the same way as a micro condo in downtown Vancouver.

When it came to the financial crisis that triggered the American housing collapse in 2007, you may think that real estate across one country can change all at once. And you would be partially right. It would appear that almost every real estate market in the U.S. slipped in price. Though a closer look will show you that the drops in Texas were minimal and the collapses in California, Nevada and Florida were colossal, like Godzilla strutting through town.

Still, there are practices and policies that can affect all real estate markets across one country. In Canada, federal policies about tightening lending practice will influence how buyers buy properties across the country, no matter where you are. A change in interest rates can certainly have a bearing on anyone who wants to buy a property or renew a mortgage.

For the most part, though, the things that affect the real estate market tend to be local, even hyper-local. This year alone we can see Vancouver, Toronto, Edmonton and Calgary all enjoy healthy gains in home prices. Montreal, Victoria and Halifax, have gained very little.
Toronto, for example has very specific housing policies that only affects this city. We have a provincial and Toronto land transfer tax. The double land transfer tax deters many people from selling since it becomes too expensive to sell and pay the two taxes. This, in turn, causes few listings to come to market, and more competition and higher prices.

Even within Toronto, the condo market functions differently than the market for houses. Even condos in the same neighbourhood that are relatively the same size and age will function differently from one another. All you need is one very well managed building compared to one that is poorly run to show you the difference. Well run condos will have much more appeal that is reflected in the price. The board will use their reserve fund wisely and take care of the building. A poorly run condo will have a low reserve fund, possibly some issues with the builders, or insanely high maintenance fees that don't reflect the work that has been done or the amenities included.

So, the next time you see the word "national" and "real estate" together, take this statistic with a grain of salt. Though there are some factors that truly affect all properties across the country, the local and hyper-local factors have a much stronger influence.

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