by Peter Squire
In a time when fake news is gaining headlines and we now hear about alternative facts to what has been reported as accurate, where do people go to get information they can rely on to make the most informed decision on the most important investment in their life? The simple answer is to call your REALTOR® —the local expert on what is currently happening within the real estate market where you are interested in selling or buying a home.
Realtors make it their business to know the market and can give you the best advice on how to sell or purchase a home based on the knowledge they possess by applying that knowledge to your specific situation and circumstances. Certainly one of the most important things they do, beyond all of the necessary detailed documentation required of the process, is to educate clients on being as objective as possible in order to set realistic expectations on what they can achieve given the current local market conditions for the property type in question.
In what has been a very competitive market the last few years in the Greater Winnipeg area, owing to a healthier supply of listings, especially for the condo market, Realtors see first-hand every day what it will take to achieve a certain asking price based on recent sales, features and conditions of the homes which sold. They are attuned as well to what a buyer should be prepared to offer on a home based on MLS® market metrics that they are constantly checking and reviewing. Part of this whole process includes interpreting all the necessary data and external factors. It helps that they are required to take mandatory education every year to ensure they are updated on any new regulatory changes which may affect how the sales process unfolds.
So where does all this fit when so many sources in the media make unequivocal statements on the status of a housing market? Call your Realtor, as they will probably be able to allay most of your concerns regarding misleading or confusing information in the media.
Let’s explore two examples of misleading information which were rolled out this week.
One is CMHC’s release of its quarterly housing market assessment report for the fourth quarter in 2016. CMHC has created a new housing market assessment framework based on four main risk factors. No matter what they determine through evaluating the incidence, intensity, and persistence of a risk factor such as price acceleration or oversupply, the final rating for a housing market is problematic. But even if a market shows weak evidence of problematic conditions, the negative slant on housing remains. Even, as is the case for Winnipeg, where only one risk factor — overbuilding of condos (condo market share represented 13% of total MLS® sales in 2016) — may be considered a moderate risk going into 2017, the overall rating for Winnipeg’s housing market will be moderately problematic as it was for the third quarter in 2016. This is hardly an accurate assessment of Winnipeg’s balanced housing market which performed extremely well in 2016.
Another example is a survey which was released this week. It garnered a headline in the local newspaper saying Winnipeg’s housing is unaffordable. Published by the Frontier Centre for Public Policy in collaboration with the Demographia group in Illinois and the Atlantic Institute for Market Studies in Halifax, it essentially employs something quite similar to the long-established RBC housing affordability trend report, but on an international scale, with many smaller populated housing markets included.
Affordability is determined by dividing median housing prices by median household income. Here’s the flaw. Based on the ratings scale that Demographia used to rank Australia, Canada, United States, United Kingdom, Ireland, China, Singapore, New Zealand, and Japan, only one country — the United States — had a major urban centre with affordable housing. To be affordable means having a median house price up to only 3 times the median income which not surprisingly eliminates most cities from being considered affordable. Besides choosing a low median price multiple of income to define affordability, Demographia overlooks the fact that many buyers in a housing market have built up equity and other wealth in addition to income when purchasing a property. How else can they afford to buy a home in cities such as Vancouver and Toronto where their respective ratings were 11.8 and 7.7? Winnipeg’s was 3.7.
Now what does RBC have to say about Winnipeg in terms of its housing affordability? RBC for years has been applying the same median income measure, but more responsibly compares it to the cost of mortgage payments, property taxes, and utilities based on the median market price.
In its most recent report based on the same third quarter 2016 data that Demographia used in their survey, RBC’s assessment indicates that Winnipeg’s aggregate measure is just marginally above its 29.9% average since 1985.
According to RBC’s report, “There were few affordability issues to restrain homebuyer demand in 2016, which has been solid all year based on the historically elevated resale levels sustained in the first three quarters.”
It can also be said that many of the home and condo sales in Winnipeg in 2016 would have fallen under the unrealistically low affordable median level Demographia set for its survey.
Whatever price level you are interested in, despite what some survey decides to call unaffordable, please call your Realtor as they will provide you with the best local market knowledge and expertise to guide you accordingly.