“Let’s just say the white-hot heat of last quarters won’t last forever.’’
It may not happen suddenly but real estate professionals on the ground are beginning to see signs that Montreal’s red hot real estate market may be cooling down; or at least growing at a less intense pace.
Data compiled by Colliers International suggests Montreal’s market has recently peaked (represented in the graph near phase 11, the demand/supply equilibrium point), and so the question that remains is, for how long?
Montreal’s Cycle at a Glance
Historically, the duration of a full cycle is anywhere from seven to eleven years. Though the cycle has been somewhat disrupted by the pandemic, and its effects are still being understood, the steady rise of interest rates is just one of many indicators that the recessionary phase may only be a year or two away.
With interest rates unusually low and demand for housing in Montreal unusually high, it’s understood that the recession phase may not plunge us into an actual recession — that is to say negative growth for a time — but rather, we expect, a cooling and less aggressive growth in the market.
Joe Rullier, vice-president with Colliers International — Capital Markets Division, believes he is slowly watching the market shift in late 2021.
“You can see this now, in real time, with all the condos being built,” began Rullier. “Because interest rates will be going up, some people will no longer be able to afford them. This leaves us with more supply than there is demand — prices fall and the equilibrium is lost a bit before the cycle restarts.”
Buy or Sell?
It’s a tricky situation for buyers and sellers attempting to navigate the uncertainty of a market in flux. To this end, a long term strategy is essential in weathering a market cooldown of indeterminate length.
“Knowing what we know, and how the market is not recession-proof, you need a long term plan for your property,” continued Rullier. “In times like these, often the best move is to hold, knowing that its value will eventually climb back up. In the short-to-medium-term, we can assume that right now is a logical time for some to sell because the boom won’t last forever. The market isn’t cooling yet per se, but let’s just say the white hot heat of last quarter is feeling a lot less intense right now.”
The bottom line: if your property is worth more today than your best long-term projections had forecasted, there’s a good chance that it’s time to sell. Because at some point in the near future, if history is any indication, that window will close.
Weathering The Storm
Rullier sees pandemic spending as a potential red flag for interest rates but raising them now would be hasty because Canadians cannot afford it.
“I think it would be foolish. That would bankrupt many Canadians. And banks? They aren’t equipped to handle a spike like that right now. I’m of the mind that it’s in everybody’s best interests to stabilize all financing and help people recover from this crisis.”
Another factor to consider is how Montreal in particular is currently dealing with a housing crisis.
There is surging demand for affordable housing amidst a labour shortage, and prices remain very high. Rullier maintains that the City of Montreal’s strategy of restricting development and limited density is directly contributing to a supply shortfall that, ironically, flies in the face of the current administration’s commitment to affordable housing.
“The more supply, the lower the price,” he explained. “The more density you give, the more reasonable prices get. When housing prices are affordable, more people want to live here, and that’s good news for Montreal’s economy.”