If you’ve been keeping an eye on the Canadian real estate market, you’ve likely observed a similar slowdown in activity. The Canadian Real Estate Association predicts that the housing market is poised for its slowest year since 2008.
While market conditions vary across different regions, prospective homebuyers in Canada may face a challenging journey. With mortgage rates reaching 7% and housing prices soaring, some individuals are hesitating to enter the market.
But is waiting the right strategy? Here are five reasons to persist in real estate investment, even in the current climate.
5 Reasons to Move Forward Despite High Interest Rates
Reason #1: Affordability Driving People More People into Single-Family Rental Homes (SFRs) last year
Given the affordability challenges in the real estate market, more people are exploring alternatives. The top three reasons for this shift include the desire for new or higher quality housing, job relocations, and, unsurprisingly, the pursuit of more affordable housing. SFRs are becoming increasingly attractive, presenting profitable opportunities for investors.
The reality is that the market will remain challenging for the foreseeable future. However, this difficulty also enhances the appeal and profitability of the SFR market. If Canadians can’t buy homes, renting SFRs becomes the next viable option.
Reason #2: We can’t count on a crash
A real estate market crash is not the most likely scenario in Canada. Low inventory and pent-up demand from an entire generation make waiting for a drastic drop in home prices an unrealistic expectation. Instead of hoping for a change, adapting to the current reality is essential.
Reason #3: When mortgage rates decrease, prices will compensate
While mortgage rates are expected to decrease next year, it won’t drastically alter the market dynamics. A significant rate drop will likely lead to a resurgence in demand and an increase in prices.
The decrease in mortgage rates may not have a substantial practical impact in the end. Property owners can always consider refinancing later, and today’s prices might be considered a good deal in hindsight.
Reason #4: The competition has gotten pretty low
Reports suggest that the Canadian real estate market is moving at a slow pace. Transactions are sluggish, and buyers face less competition than in previous years. This lack of competition provides investors with leverage. Although it’s still primarily a seller’s market, there is room for negotiation.
Properties aren’t moving as quickly, and investors can capitalize on this period of reduced activity.
Reason #5: It’s time to get used to the new normal, investors
Accepting the current state of the Canadian real estate market as the new normal is crucial. Conditions have been evolving for over a decade, and today’s challenges are not random. While certain events may have accelerated issues, the current situation is the culmination of a long-term trajectory.
Investors should not expect a rapid reversal of market trends. Instead of waiting, which could result in missed opportunities for cash flow and equity, it’s essential to adjust strategies and expectations. Adaptability is a fundamental aspect of successful real estate investment, differentiating lasting success from failure as a fair-weather investor.
The Bottom Line
Blaming interest rates for the sluggish real estate market is easy, but the root cause of unaffordability lies in a significant lack of inventory.
Canadian investors, don’t be discouraged. Keep strategically targeting markets that offer solid opportunities, strong market fundamentals for potential for cash flow and appreciation.
