Rent To Own done ethically

Beware of averages in real estate

Falling prices 3

It seems that everywhere you look there are reports from experts about the dismal outlook for the housing market in Canada: “Resale home market sags 12%” (The Ottawa Citizen, Section D, February 6, 2013); “Clouds gather over Canadian housing market” (The Globe and Mail, March 15, 2013); “Canada housing agency cuts 2013 forecast, sees firmer 2014” (Reuters.com, February 22, 2013); “Canadian housing boom over, economists say” (Financial Post, March 12, 2013). Every one of these articles talks about the Canadian market as a whole with some discussion of city markets like Vancouver, Toronto and Halifax, to name a few.

After nine years of investing in multiple markets across Canada, I’ve learned that Real Estate is a local business. The numbers for Canada as a whole may be interesting but they are not necessarily relevant to  home buyers who are interested solely in the performance of their house in a particular zone in a particular city. What matters to them is what the numbers show for their area. The fact that condo prices may be over-valued in Toronto does not have an impact on the resale value of a single family home in Barrhaven, for example. And yet we read these articles and we panic – oh no, the market is tanking!

It’s true that far fewer homes were sold in Ottawa in February of 2013 as compared with February of 2012, but that’s not the whole story. Consider the following: I have clients who are thinking of buying in an area of Kanata and when I asked Dawn Goodridge, a Realtor with Top Ottawa Homes, to provide some appreciation statistics for that specific zone, here are the numbers she found for the last five years:

  • So far in 2013, up 2.1%
  • 2012, up 4.0%
  • 2011, up 9.3%
  • 2010, up 5.2%
  • 2009, up 0.3%
  • 2008, up 6.1%

Those are good, stable numbers, particularly the one showing a 2.1% increase so far this year. Not bad for a tanking market.

Consider a second example: Another set of clients wanted to buy a bungalow in a community just outside of Ottawa a short while ago. When we pulled up the statistics for that area, we found that bungalows have been appreciating in value at a solid, steady pace for the past five years despite the economic upheaval. Two storey homes however showed negative appreciation for the last couple of years. When you look at the average numbers for the town, they look great. It’s only once you dig into the specific numbers that you discover that certain homes sell well in that area and others are having a hard time for whatever reason.

Averages provide a blunt instrument with which to evaluate real estate. They may be useful to indicate trends but they tend to obscure the details of what’s going on in a given area. CMHC and other sources provide projections for average growth for a particular market in a given year but we need to bear in mind that there will be highs and lows that make up that average number. What really matters for home buyers and investors alike is what the numbers look like for their desired area and property type. It’s important to drill down beyond the averages and to pull up meaningful statistics regarding your prospective property. Once you do that you realize that the sky is probably not falling. Real estate still represents a sound investment in most parts of Ottawa despite the economic challenges and the reports of doom and gloom.

So why do the media use such charged language? Probably because not many people would read articles entitled “Real estate projections not exciting but not tragic either” or “Boring times ahead”. One of the first things I learned as an investor is that you want your real estate investments to be boring. Leave the excitement to the reporters trying to attract readers.

The next time you see a worrying headline about the dire state of the real estate market, just take a deep breath and then dig up the actual numbers for your local area. That’s the real scoop.

Tags

 

Leave a Reply

Your email address will not be published. Required fields are marked *

*