These are interesting times for London real estate. A good time to sell in response to increasing demand and increased selling prices.
6,295 residential homes have been sold in London and the surrounding area during the first seven months of 2016. Sales are on pace to make this the most active year in history for London real estate. How long this vibrant market remains is a function of many factors affecting demand, some unique to London, and some simply beyond our control.
The recent spike goes beyond traditional factors affecting the housing market, such as low-interest rates and employment levels. Low-interest rates have been in place for many years now, so this would not account for the surge this year. With an unemployment rate in London that exceeds both the provincial and national average, for every positive news story such as Sodecia we find a negative story such as Kelloggs, so we can safely discount job creation as a catalyst.
Currently, the two largest population segments in London are the 25-34 and 50-59 age groups. First-time buyers typically drive the real estate market, Smith argues, saying that a case could be made that these 25-34 years old are either entering the real estate market for the first time or are upgrading their homes with an expanding family.
Meanwhile, the 50-59-year-olds could be “empty nesters” and may be looking to downsize, so a natural fit would be that their current homes are being purchased by the younger demographic. Smith warns that the number of residents replacing the 25-34-year-old age group in the next five years falls off dramatically, so this suggests less first time home buyers in the future.
I believe the biggest reason for the current need for London housing is simply the immigration of new people to London. We will learn more when the 2016 census data is released next spring. We added approximately 14,000 new residents between 2006 and 2011 but it would not surprise me if that number close to doubles by the end of this current five-year cycle.
The reason for immigration is twofold but both are a result of what is happening with our neighbours to the east. Toronto adds about 100,000 new immigrants each year, or to put it in perspective, a new city the size of London is created every four years. This puts pressure on real estate prices in Toronto, forcing many new immigrants to take up residence in smaller communities such as London where the cost of housing is more affordable. You see this trend predominantly in other communities such as Barrie, Oshawa, Hamilton, Kitchener etc; cities accessible to Toronto by rapid transit. Toronto is also popular with foreign investors who see holding real estate as a safe haven for their investment dollars, subsequently driving up the cost of real estate.
The second group of immigrants is made up of transplanted Torontonians, who are seizing the opportunity of the real estate bonanza, by selling their Toronto homes and retiring in London. With the disparity in the cost of housing and our attractive health care and living options, London has become a logical retirement destination.
The price of Toronto real estate will be interesting to track over the next year. British Columbia recently introduced a new 15% transfer tax on foreign investors purchasing real estate, in an effort to slow the housing bubble in cities such as Vancouver and Victoria. If Ontario adopted a similar policy, that might slow down the Toronto market and reverse the exodus trend to other cities such as London.
One additional variable to monitor is the November U.S. election. If Donald Trump is elected President, he has promised a renegotiation of the North American Free Trade Agreement. That alone could have a huge impact on the Ontario economy, and could change the real estate market overnight.
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Early indications are that 2017 will be another great year in London real estate. We are seeing the early impact of the “Trump effect” so we will need to closely monitor that effect on our markets.