For the last two weeks we've discussed several factors which are leading to the constant bidding wars in our real estate market. This week we will wrap up the discussion with some factors you might not have thought of. So without further ado…
Low Vacancy Rates
The Windsor-Essex area’s vacancy rate on rental units dropped to 2.9%, with CMHC’s latest report in the fall. That is an amazing turnaround from 2008-09 with 12-14% rates. With this decrease in vacancy comes a decrease in available rental supply and an increase in rental prices. People in the area considering whether to rent or buy might be disappointed to see the available options for rent on the market and what that rent gets them. Combine this with low interest rates and it can in many cases make it cheaper to own than rent. This low rental supply and high rent price dynamic has definitely added to the demand from buyers in our market.
Sticker Shock On New Construction Prices
The cost of new construction in the area has really taken off in the last few years. Part of that is based on increased demand. But part of it also comes from increased soft and hard costs including building permits, increased building code, increased import prices due to the low Canadian dollar, etc. Many people are no longer able to afford a new home so they are forced to settle for finding a suitable resale home, increasing demand of existing homes. There is also a consideration that resale homes will tend to keep pace with increases in new construction prices, so the relative values don’t get out of whack.
A Period Of Depressed New Construction Before This Cycle
Approximately between the 2007-2011 period, there was a rough patch in the demand for new housing. The auto industry was teetering on the brink of bankruptcy, unemployment was high and people were leaving the area. Naturally, there wasn’t much building going on. Now that things have turned around, the new supply hasn’t been able to keep up with the pent up demand due to that period of under-building. To give an example, the condo market is extremely tight now for supply. Hardly any condos were built in the area over the last 10 years. But during those 10 years the population aged, the millennial segment of the population grew (with their admiration for condos) and the demographics were there for condos to be built. However due to economic reasons, none were built. Now we are in a period of catch up where there is a lag of new condo supply to meet that pent up demand. Let's build some condos!
Upcoming Infrastructure Projects
Smart infrastructure has great spin off for the local economy and people are positioning themselves ahead of what’s to come. We have some big projects coming to the area. The new bridge crossing, the accompanying recently completed Herb Gray Parkway, the new Mega Hospital (even if the site is undetermined), the University of Windsor is moving downtown, and a new City Hall, just to name a few. These sorts of projects if done correctly, increase economic activity and efficiency, lead to increased investment in the area, and trickles down to increased housing demand. The future looks bright for the foreseeable future on this front.
This exhausts our discussions on the factors leading to bidding wars in our local real estate market. We hope you found it insightful. Do you agree or disagree with any of these factors. Any you feel we missed?
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