Price Have Peaked

29/10/2002

I've got good news - The market has definitely hit the ceiling and the boom is all but over. I know what you're thinking, "I've lost my mind" but really, this is a good thing - allow me to explain.

Let's begin by looking at the tell-tail signs - they' re all around. First off, the multiple offers have slowed. Secondly, homes are taking longer than a week to sell. Thirdly, I've made an observation of the average sale price in my office (which I believe is a good representation of the activity in the local market) and it reveals a continuous drop each month for the last four, totaling almost 1%. Not only that but I have found that Buyer calls began to slow about mid September and have yet to recover. These are all signs that we have hit the ceiling. So what happens next? To answer that question we must be reminded of our market's history.

The bottom of the market was in 1997, right? So that means we've had a five-year run, which is just about perfect. The prices, south of Ottawa, on average, have risen about 35% give or take, in that same time. I'd like to suggest to you that this is a healthy increase that will allow our local market to adjust and recover in a relatively short time.

My fear, for the market, has been that it would take another year to top out which would prolong our downturn. You see, the general law of any market is that, "What goes up must come down". In the 1980's there was about an eight year gap between the bottom and top '83-'91. And then remember 1992? That was the year we began our downturn. I recall a humorous fax that went around to all the real estate offices that year. It depicted a Realtor on his knees, praying to God - the caption read, "Oh Lord please let there be another real estate boom and I promise not to fritter it all away this time!" Yes, 1992 was the first of six consecutive years of pain, until we finally stopped going down in 1997.

Where does that leave us? Well, the last cycle was all about extremes. During the early stages of the cycle, the market was stabilizing from the shell shock of 1982 interest rates that spiked at 17% - that was pretty extreme. However, by 1986 the market was hot and the prices were increasing by about 5% every quarter until the end of the decade - that was pretty extreme! When a market experiences extremes in one direction, it ultimately is reflected in an equal and opposite direction (like a pendulum). And so, we all remember the 1990's, - they were pretty extreme too.

This time around, there were no real extremes. A 35% increase is quite modest by 1980's standards and my prediction is that the correction will be equally modest. You see if we have a little correction over the next 24 - 36 months, prices will probably inch their way down by about 10% or so. During this time the Americans will sort out the Iraq and Bin Laden ordeals and hi-tech should be able to get its act together. I would say by 2005-2006 we'll be on the way back up.

That's o.k. for the long haul, but what about the short term? When a market hits its limit in either direction it does not just turn and head the other direction - far from it. The next 12 months or so will prove to be quite an enjoyable time to be involved in the real estate process, whether buying or selling. You will see a leveling of the playing field, where Buyers and Sellers come together on equal terms. The number of listings should increase slightly and the number of buyers coming into the market has already slowed. This is the transition from a Seller's Market to a Buyer's Market - it's called a Balanced Market and it is a wonderful time to Buy or Sell.

My final thought.... For those of us who rode the real estate market during the last cycle, we remember it as a time filled with high highs and the low lows. And although it was a very exciting time on the way up, the way down prove to be quite painful. But real estate was just one part of that time in history. The wave we all rode was not just a real estate wave but a cultural wave of extreme proportions. It would seem that we, as a society, learned something about over-indulgence. We learned that too much of a good thing is really a bad thing. I think that our present wave is teaching us that moderation and balance is a much better way to live. All and all I think our current cycle is much more appealing, both from a real estate perspective and culturally. Who knows, given enough time, even the stock market might get itself back on track. Here's hoping! Thanks for listening.

Return to Real Estate News