Real Estate – Outlook and Strategy for 2019

January 8, 2019

If you're looking for drama, the real estate outlook for 2019 is not the place to get it. If one word could be used to describe what's predicted for 2019, it would be "moderation".

According to the Canadian Real Estate Association (CREA), home sales nationally are expected to decline moderately (o.5%) and prices are predicted to rise slightly (up 1.7%). Higher interest rates and stricter rules around mortgage qualifying are squeezing sales and prices while a growing population seems to be applying upward pressure to the market.

Of course, for a real estate investor, national averages (which are heavily influenced b what happens in Toronto and Vancouver) aren't very relevant. It's what's going on locally that will determine the value of any piece of real estate, especially if national factors are modest. The trick is to weigh both national and local factors appropriately when evaluating any potential investment.

That being said, there are lessons to be learned from the nation-wide statistics. First, it's important to note that "moderate" changes in real estate prices are the norm. Over the last 60 years, the average annual return on residential real estate has been about 4.5%. So, if you are looking for above average returns, a long-term buy and hold strategy isn't enough; you need to be either more creative or more active to achieve decent results.

How Does This Apply to You?

If you're thinking of buying: A reasonably stable market means you can take your time and find the right house at the right time. On the flip side, if you're waiting for prices to drop before you buy, you might be waiting awhile. If you're looking to buy a "flip" home, you can be reasonably certain your predicted post-reno appraisal will still hold. If you're looking at buying a rental property, cash flow is still your number one priority (our next blog deals with what to look for in a rental property).

If you're thinking of selling: Again, there is no big rush; you're not going to make a killing or take a bath in the near future. However, it appears your equity isn't going to appreciate much either, so, the sooner you get that equity into an investment with a bigger upside, the harder it will work for you.

If you're in a "hold" position: The equity you have in your property isn't going to do much for you in the near term. In a way, your equity is actually doing nothing to contribute to the investment. Even if prices change, the change in value of your property on the market has nothing to do with how much cash you have invested. Whether you have $20,000 equity or $200,000, if your property value goes up by $10,000, your gain is still $10,000. Your rate of return actually decreases as the equity in the property increases. Now would be a good time to liquidate some of that equity and put it to work.

distressed property