Happy New Year, readers! Hope you had a great holiday season and that your 2019 is off to a great start. Now that everyone is back to business, who wants to talk some real estate? Today, we are going to offer our real estate market predictions for 2019.
Cap Rates Will Mostly Flatten Out or Even Increase A Bit
Cap rates have seemingly hit bottom. They didn’t really have much further to go, so this isn’t surprising. Now that interest rates have increased a bit, investors appear to be looking for a higher cap rate on their commercial investment properties. We reached a bit of a standstill with some properties in 2018, with sellers' lofty expectations not being achieved in the market. To get these deals done, sellers will need to adjust their expectations.
Multifamily Will Still Be On Fire
While it is our opinion that cap rates commercially will stall out, multifamily still has some positive dynamics that will keep it chugging along. First off, the demand is still very high from across Canada and the supply is very limited. It isn’t economical to build with these new construction prices, so adding new supply wont help the situation. Plus, the rental market is tight and rents are increasing—that doesn’t look like it will be changing anytime soon.
Interest Rates Will Increase, But Not As Much As Expected
Economists and market forecasters are expecting multiple interest rate increases this year, on the back of the three times the Bank of Canada raised last year. While we foresee rates to go a little higher, we don’t think the market in general can withstand an interest rate spike without causing a significant recession. The population is far too indebted and—particularly in expensive cities like Toronto and Vancouver—the cost of increased interest expenses can't be born. For these reasons, we think interest rates will have a lid on them.
The Lending Environment Will Get More Difficult For Borrowers
The government has introduced several measures over the last few years to try and cool the housing market. It finally seemed to have been working, as Toronto and Vancouver didn’t have such great stats in the second half of 2018. Combining these measures with higher interest rates, qualifying for the house you want is getting more difficult. We are also seeing lenders and mortgage insurers pulling back their risk, scrutinizing more deals and generally acting less competitive in the financing market. We expect this to continue in 2019. This may also lead to more firm deals falling through at closing due to some of these factors. So we advise sellers and listing agents to be extra diligent in ensuring buyers are qualified and pre-approved for a mortgage in your price range, with a little extra buffer for safety. Also, ask for big deposits!
Rents Will Rise & Vacancy Rate Will Fall Again
Residential rents have really increased in the last few years and the factors driving that don’t seem to be changing anytime soon. In fact, with the housing market continuing its climb and with the tightening lending environment, more people could be driven into the rental market, increasing demand. Adding to this is the start of the Gordie Howe Bridge, bringing with it a large influx of temporary workers coming to the area; the vacancy rate is forecast to continue to trend lower.
2019 should be an interesting year in the real estate market. Those are our predictions. What are yours?
