The psychology matters.
Monday May 15th, 2017
For example, if you have a house which you could sell but you keep hearing about house price increases, you might be considering to hold onto the property in case the value keeps going up and you miss out on a much bigger windfall.
This kind of logic, usually associated with stock and commodities market, fully applies to housing since our houses turned into commodity long time ago. This is exactly the situation we have seen in the first four months of this year. I know lots of people who were seriously considering selling last year, and complaining that they couldn’t get the price they wanted. The same people refused to put the property on sale in the February-April frothy market even though they could get their price target and another 20% on top of that, just to sweeten the deal.
Now, when governments, both federal and provincial, send subtle, very subtle message that they aren’t going to allow this deviation to continue – and indeed, it would be plain crazy to endorse further increase after 35% jump in prices, people think that it may be the right thing to cash out right now.
In the same time, buyers see a whole lot of new listings coming up to the market and decide that they will just wait a little bit longer.
As a result, market slows down, and further price increase becomes muted.
However, fundamentally, nothing has changed: vague promises to increase housing supply and release land for development, financial breaks for rental development, it’s just a talk so far.
This slow season may be just a temporary thing. Again, it’s a market psychology, not fundamentals that really matters – if public think that real estate prices can go only up, there will be never enough land and houses and condos to satisfy the demand, because, in the current economic environment of low-interest rates / low capital gains taxes, everyone wants to be on a board.