Purchasing in Kitchener-Waterloo – Why It’s Still a Good Decision
Hey there, buyer! I wanted to check in, touch base, see how you’re feeling. It’s been a wild few years in the real estate world, especially here in Waterloo Region. The Region of Waterloo encompasses the towns of Waterloo, Kitchener, Cambridge, and the smaller North Dumfries, Wellesley, Wilmot, and Woolwich. Due to their proximity, Kitchener and Waterloo are often hyphenated, but the locals just say KW. A benefit of living in this area is having so many charming yet disparate towns so close together. Since the beginning of the pandemic when we had no idea what was going to happen in the real estate market, prices in the Waterloo Region as a whole soared, increasing by more than any other region in Canada! Why is that? I’d say mainly because of the influx of GTA buyers moving out this way due to the proximity to Toronto, but with significantly lower prices. Working from home enabled a whole lot of people to broaden their search area, and people took advantage!
Anyway, all of that is pretty straightforward, obvious stuff. What I really want to get down to is the theory that there will be a major crash and that everyone should hold out until that happens. While it could happen – who knows, I’m not a soothsayer – I still think KW is a smart place to buy, even if the market begins to soften. Why? Because Kitchener-Waterloo has a lot to offer with its universities, being the tech hub of Canada, its major insurance industry, lots of manufacturing jobs, proximity to Toronto and the 401 corridor, legalization of tiny homes, and having its own international airport, to name a few.
LOCATION AND WHAT THAT MEANS
According to CBRE, Waterloo Region has a larger share in tech employment and talent than many of its US counterparts like Austin, Detroit, and Columbus. If we want to take this a bit further, we can draw great comparisons between Silicon Valley and KW. Both of these tech hubs are about an hour outside of their respective large cities, San Francisco and Toronto. As the biggest US tech hub, Silicon Valley has had a pretty stable real estate market throughout the last 40-50 years due to its abundant job opportunities in the tech industry since the 1980s. This has also led to this smaller city having one of the highest rents in the US along with house prices that are 5 times the national average. Even during the 2008 recession, house prices rarely dropped more than 10%-25%, when the rest of the country was experiencing dips of over 30%, before booming back up 70%-90%. Here in Kitchener-Waterloo we are home to some major tech headquarters and other innovative companies like Google, D2L, and Communitech. The University of Waterloo is not only notable due to its sheer size but also because of its impressive ranking in artificial intelligence. Wilfred Laurier University and Conestoga College also offer a variety of education. So, if this is where the concentration of talent is at, where do you think the job opportunities will appear? And if this is where the job opportunities are at, where do you think the demand for housing will be? You get where I’m going with this? There’s only so much building that can happen in the region before there’s nothing left to build on, meaning the demand for homes here is going to stay high. Take a look at all the condos that are being built in downtown Kitchener (or as the locals call it, DTK). That’s the best way to intensify the city at this point because there’s hardly any room left to build detached properties. During the pandemic, with the ease of remote work, people have been flocking to the suburbs. Personally, I don’t think that the work-from-home trend is going to be the new norm. I do think people still want to be able to socialize with their co-workers in person, while still having the option of working from home. What’s great about Waterloo Region is that we have lots of suburbs, and even more rural properties in the smaller towns mentioned above, to accommodate those needs, while still being a short commute to work if and when going back to the office is the thing.
THE WAITING GAME, WILL IT PAY OFF?
I know, it’s a cliché at this point, but time in the market is more important than timing the market. And if you’ve been thinking about buying for a while and have been hesitant to get going, just do it! Let’s be real, no one knows if a market crash will happen or when, and so far it hasn’t (even when people thought it would). So far we’ve waited 15 years for this bubble to burst, and in the meantime, what are you supposed to do? Sit on your hands and wait while time passes and opportunities are lost? Remember in 2017-2018 when we experienced another “bubble” and everyone was waiting for it to pop? Well, what really happened was a strong surge of buyers looking for homes to buy while interest rates were low and coincidentally so was housing inventory. Then, the new Foreign Investor Tax or Non-Resident Speculation Tax was implemented, and interest rates increased. This scared away some demand for a period of time, BUT take a look at the chart: the average sale price of all properties in Waterloo Region did NOT drop below where it started! Sure, there were some fluctuations, but it continued to increase over time. Guess where we are at now? Actually, don’t guess. Look at the chart! Another thing to take note of is inventory. If you want to know when you have more buying power, consider the current supply. Again, the charts will tell you when there is typically more inventory on the market. If you guessed that this is typically in the Spring and Summer, you’re right! As another example, at the beginning of the pandemic the prediction was that the market was going to decrease 18%, and look at where we are 2 years later: the median price for detached homes in KW is up 60% from Q1 of 2020 to Q1 of 2022. Our brokers at TrilliumWest put a lot of time and effort delving deep into the numbers each quarter, each month, and over the last year every week as the market was fluctuating that quickly with the average days on market being 6 days.
What does this mean now? The market has started to slow down a bit with the interest rates rising again (yes, they’re rising, but they’re still 15% lower than they were in the 1980s) and the influx of inventory, so it’s a good time for buyers to make a move.
I think one of the toughest parts about millennials buying real estate or deciding to purchase that first home is that coming from mom and dad’s place or whatever home you are renting, it’s likely going to be a step down, and sometimes seeing what is affordable to you doesn’t look like the dream home you’d been thinking about. But with a little imagination and hard work, you can transform a space. The biggest thing you have to remember is to look at the bones of the house. Most other things can be changed to your personal taste. And at the end of the day, paying down a mortgage far outweighs paying tens of thousands of dollars a year in rent.
Another big thing to remember is that your parents’ first home probably isn’t the home they’re still living in. You have to work up to that dream home. If that means living in a smaller home that wasn’t exactly what you imagined, well, you have to start somewhere. Stepping stones are key in the millennial real estate world. If you have to start in a condo to get your foot into the market, well, you have to start in a condo to get your foot into the market. If you really can’t stand the condo life then consider purchasing a property that you won’t live in but could rent out while you stay at mom and dad’s, hopefully rent free so you can save up. Maybe it’s not in the area you want, but someone else will certainly be looking to rent there and they can foot the bill until you’re ready to get that property you’re dreaming of. You know how you afford that dream home? By purchasing something that will build any sort of equity over the next few years, and by paying a mortgage instead of paying rent. In a few years with the equity you have built, you can take that extra money and put it towards a down payment on a nicer home. Maybe that home still isn’t your dream home, but you repeat the process.
The real estate market in Kitchener-Waterloo is a strong market for the reasons I listed above. I think there are always going to be people who are drawn to buying in this city. So, for that reason, I think buying in Kitchener-Waterloo is a smart decision, and one that could be a stepping stone to owning that dream home in the future. Let’s talk! With a little patience and determination, you could be well on your way to becoming a homeowner!