Happy new year everyone! Hope you all had a great holiday season and are rested up for a busy 2017. While the year is still young, we wanted to consult our crystal ball and take a stab at making some real estate predictions. Here goes.
Interest Rates Edge (Modestly) Higher
Since interest rates are near all time lows, common sense would dictate that they don’t have anywhere to go but up. We think this year that happens, albeit in a limited fashion. With the combination of higher bond yields, and some of the government mandates coming down on the financing industry to curb runaway real estate markets in parts of Canada, this will finally be the year for higher rates.
Buyers Get Multiple Offer Fatigue
During 2016, it seemed like every listing had 5-10 offers on it and bidding wars ensued. While the market dynamics forcing this are still in place, we feel a segment of the market is growing tired of the constant competition. This will result in a lesser number of the crazy bidding wars we saw over the past year (hello 31 offers!).
Cap Rates Flatten Out
We remember back 6-7 years ago when obtaining an apartment building with a cap rate of 10%+ was common place. Those days are long gone and prices have been bid up consistently since then, compressing cap rates. Today you have a hard time finding an apartment building with a cap rate over 6%. This dynamic has also been seen in retail plazas, office buildings, and other commercial properties. We don’t see much more room to run on cap rate compression going forward.
Continued Sticker Shock On New Construction Costs
With new construction going through a boom in the last few years in our local market, builders and related trades are very busy. Combine that with increased prices for land and imported material costs rising because of the low Canadian dollar, buyers will find their price range won’t get them as much when considering a new build. We don’t see this subsiding anytime soon and if anything expect further price increases.
New Condo Projects Coming Online to Meet Demand
Build it and they will come. It wasn’t always this way in our local market, as condo ownership was slow in being generally attractive to buyers. But times have changed and the condo market may be the tightest of them all. The market can now support more condo developments and developers will respond to this demand with multiple new projects in our area that we expect to be met with brisk demand.
Those are some of our predictions for 2017. Time will tell if our crystal ball was right. What are your predictions?
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