Analysts warn London, Ont., real estate is poised to become an 'extreme sellers' market' in 2021
Out-of-town buyers and a dwindling supply of homes will continue to push prices up
Analysts are warning real estate in the London, Ont., region is poised to become an "extreme sellers' market" in 2021, driven by an influx of out-of-town buyers seeking more space in the coronavirus pandemic and a dwindling supply of homes for sale.
The prediction for 2021 caps off a 2020 housing market characterized by extreme volatility due to the pandemic, which paralyzed sales in the traditionally busy spring market and held back sales over the summer, causing pent up demand to finally be released in a torrent of sales over the fall and winter months.
In addition to the sales surge at a time when the market would normally be cooling off, the central bank lowered interest rates to a record low, signalling they would likely stay there until at least 2023.
Add to that an influx of out-of-town buyers seeking more space and value for their money and it's created a real estate market in the London, Ont., area that's in no mood for low-ball offers.
'Extreme sellers' market conditions'
"Price growth has been extremely strong, it's been in double digit territory, actually 20 per cent year-over-year for the last few months, so everything is pointing to the extreme sellers' market conditions," said Anthony Passarelli, a senior analyst with the Canada Mortgage Housing Corporation who keeps a close eye on the London market.
In fact, the market has been so volatile Passarelli said the CMHC has had to revise its forecasting because the pandemic has thrown off the normal seasonal rhythm of the industry.
While he doesn't have exact numbers for where 2021 is going, he does predict prices will continue to push upward despite the lockdown.
"The sales activity might come back down a bit because of that, but there seems to be too low supply of listings to satisfy the number of buyers out there and that will continue to push prices up."
Supply is such an issue, Passarelli said, that even with a record number of housing starts in the London area, a large number of potential home buyers will be kept from buying because demand has been so strong with people using the sale of their big city home to pay for their retirement in London.
'Builders can't build fast enough'
"In London, the sales have grown and the listings have not," he said. "That's indicative of more buyers in the area that don't add to the listings, but only add to the sales. Obviously those buyers would be from another region. They're listing the home where they were."
Not only are those buyers not freeing up an existing house for someone else to buy, they're also coming armed with a large amount of cash they can use to outbid competing buyers, something real estate agents have been seeing on the ground during the closing months of 2020.
"The last three months of the year so far have been really strong sellers' territory with bidding wars and multiple offers being the norm and I think that's going to continue and probably only intensify for the short period," said Blair Campbell, president of the London St Thomas Real Estate Association.
"Obviously that's a frustrating situation. The supply situation is extremely low. Builders quite honestly can't build fast enough."
Average London home could get close to $600K in 2021
Campbell said competition among buyers has been so fierce in just the last month that he's seen homes in the $600,000 range that normally sit on the market for months sell in a flash. Agents are inundated with anywhere from 30 to 60 offers.
In many cases, he said, people will buy the house without ever visiting it in person.
"Probably more homes sold, at least for me, virtually without the buyer actually seeing the home."
Back in November, the Canadian Real Estate Association has predicted that the average home in Canada will likely hit an average price of $620,000 in the New Year.
"I think certainly there's a potential, but I don't think it will reach that high," he said. "At some point in time it has to start to level off, so I think $620,000 is unlikely."
That reckoning will come, but it will take some time. Campbell said the pent up demand caused by the pandemic will take some time to work its way out of the market.
Still, he's worried the pace of market activity is unsustainable and that while agents are seeing record-setting sales now, it won't last forever.
"It's really moving to that situation where you can't have records because there's nothing to sell. I don't see a quick solution to the supply issue that we currently have," Campbell said.
"It's still going to be a challenging time for a number of years."