ANALYSIS: Skyrocketing sale prices of London homes ‘unsustainable,’ experts warn
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The London region’s skyrocketing home prices can’t go on indefinitely and should worry some people in the market, especially first-time buyers trying to get in, some experts warn.
The average sale price of a London-area home soared by $20,000 last month alone, hitting a record $521,883, latest figures from area realtors show.
That’s virtually double the average selling price of a home only five years ago, and up 28 per cent in the past year, a record jump for a region where the average price passed the $500,000 mark for the first time in August.
“That kind of growth is unsustainable,” Robin Wiebe, a senior economist with the Conference Board of Canada, said Tuesday.
“I would expect some kind of cooling, at least in the price growth, come the new year,” he said.
“But what I’m saying is that the rate of price increase is going to slow, not that the price is going to decline.”
The surge in prices last month can be attributed to pent-up demand after the COVID-19 pandemic essentially brought home sales to a halt across Canada during the spring, traditionally a home-buying season, said Andrew Scott, a senior analyst with the Canada Mortgage and Housing Corp. (CMHC).
“The market was really frozen in the normal spring market, so a lot of that activity is being shifted into the summer months, including September, so it’s not necessarily the best comparison, this year to last year,” he said.
Other factors also have combined in a perfect storm that has pushed up home prices almost everywhere in Ontario outside the Greater Toronto Area. Key among them:
– Low interest rates that make the cost of borrowing to buy a home, even in a hot market, easier to swallow.
– A significant drop in the supply of homes for sale, pushing up prices of those that do hit the market.
-GTA-fleeing homeowners who can sell high in that market and buy elsewhere, including those who can work remotely and don’t have to stay in Toronto where the average prices are much higher.
“I’ve been in the business for 35 years and I haven’t really seen anything quite like it before,” Wiebe said of the factors shaping the industry now.
Despite the skyrocketing prices, last month was the best September for sales ever in the London market, which includes the city, Strathroy-Caradoc, St. Thomas and portions of Elgin and Middlesex counties. Almost 1,000 homes — 960 in all — were sold, the London and St. Thomas Association of Realtors reports.
An obvious question is whether the area market is in a bubble that’s bound to burst. Scott avoids that terminology, but said the kind of month-over-month price increases the area has seen are unsustainable.
“If it were to continue at this pace for a longer period of time, you would start to get concerned,” he said.
The hot market — in a region trying to fight off the economic fallout of COVID-19 and saddled with 9.3 per cent unemployment — makes it especially tough for people trying to buy their first homes, pricing many out of the market.
Rising home prices ripples into the rental market, where rents have risen sharply amid a tight supply, Scott said.
“This does put more pressure on the affordability side of the market, particularly for a lot of first-time home buyers,” he said.
“For some renters, it may be more difficult to move into the market at this point or they may have to put off the decision for longer now.”
BY THE NUMBERS
- $521,883: Average home selling price in London region last month
- 28 per cent: Year-over-year spike in average selling price across the region
- 98 per cent: Average selling price increase since September 2015
- 960: Number of area homes sold last month, best September ever
