This is Bill, “the handyman.”
Bill owns a handyman service called Rent-A-Friend.
Gotta love that name!
Bill is our go to guy in the UCC office when anything needs fix’n.
More importantly — Bill is a great guy!
When I took over UCC a year or so ago, our office décor was straight out of the 70’s.
It was hideous!
So Bill has spent a lot of time at the office over the last year, assisting with some remodeling.
During my most recent chat with Bill, he mentioned that business was slow.
I jokingly said to him “time to reduce your prices”.
His response: “Go to he!! — I can’t afford to do that.”
For the record, Bill’s prices are extremely reasonable, and I wouldn’t expect him to reduce his prices.
But his comments stuck with me, and you’ll see why shortly…
This past weekend I had dinner with a client of mine — a condo developer.
As expected, conversations eventually led to real estate.
And specifically, where will prices go in Southwestern Ontario.
His opinion was this — we can all agree that there is a supply imbalance that is only getting worse (i.e. There are more people that need houses, than there are houses).
And because of the current interest rate environment, those that build/develop housing units (i.e. His company), are not doing so because it is too expensive to do so.
Developers will only start to consider new development when the profit margins begin to make sense again (i.e. When they think they can actually sell units for a profit).
And this will only happen is one of two scenarios come to fruition:
1) cost of development comes way down (i.e. Framers, plumbers, electricians etc. all significantly reduce their prices) or
2) they can sell units at today’s housing prices or greater.
This brings me back to Bill’s comment earlier — no chance construction trades bring down their costs in any meaningful way.
Why?
Because they can’t.
Just like everybody else, their expenses have gone way up too.
So that rules out option #1.
That leaves us with option #2 — Developers will need to sell houses at today’s prices or greater.
To accomplish this, requires buyers being able to afford housing at today’s prices, or higher future prices.
And this is where things begin to get political, and when things get political, they usually don’t make sense.
Will interest rates start to go down in a meaningful way?
Will developers be provided with large incentives to start building?
Will mortgage amortizations increase to 40 years?
Or will it be something else?
Who knows what it will be… but my bet is that whatever the political response is, it will likely result in long-term real estate prices going up, not down.
Until next time.
All the best,
Vince
