Reasons for Increasing Home Prices

There is constant speculation about housing prices - with some saying they've peaked and others saying they'll continue to increase. Industry experts and laypersons often cite one or two reasons why home prices will move one way or the other. The fact is home prices are affected by a variety of things.

Romana King wrote a great article that details a number of factors that affect property values for Money Sense in June 2016. Read her article it if you'd like more detail than the following summary gives. King cites an article put out by BMO throughout the article.

Supply & Demand for real estate are impacted by a number of things.

An economist will tell you that prices are impacted by supply & demand. So what impacts those things? Here's a brief, if incomplete, list of items to consider when making your own projection of where property values are going:

1. Job Growth - Areas that experience increasing employment opportunities see increased demand for real estate. Increased demand results in higher prices.
2. Demographics - The Millennial generation is about 25-45 years old. This is the prime home-buying age range and results in more demand for property. The Boomer generation, while aging, isn't ready to give up their homes or cottages just yet either.
3. Intensification/Urbanization - With more young people moving to cities for work, and the push to create denser cities, land and property values will rise in those areas.
4. Speculation/Investment - Although it is hard to know the exact impact of Foreign Investment and House Flipping on the market, there is a general feeling that these two activities add pressure on demand and push prices higher.
5. New Construction - The supply of real estate is relatively static - it takes months/years to complete housing projects and condo towers. Since the supply of real estate lags demand, there can be a shortage of property available...pushing prices higher.
6. Interest Rates - One of the largest drivers of affordability, lower prevailing interest rates drive up demand for property.
7. Regulation - Demand for property is less the tougher the guidelines/regulations are for mortgage approval.

Of course, all of these things need to be taken into consideration together when making a projection. Taken on the whole, it appears that real estate prices should remain pretty stable. Impacts of the new mortgage guidelines/regulations are working there way through the system, and job growth, demographics, and new construction all support stable and steadily rising home prices (on the average).

Read Romana's full article here: https://www.moneysense.ca/spend/real-estate/buying/whos-to-blame-for-high-home-prices-demographics-for-one/