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Chatham

Hot housing boom, skyrocketing prices can be a double-edged sword

A housing boom that's being driven by small cities like Chatham and driving prices through the roof is a mixed blessing at best, according to the Chief Economist at BMO bank.

Doug Porter said home prices in Chatham have gone up by 35 per cent or $100,000 over the past year, adding that's not necessarily a good thing that the prices are so high. He said the one-year increase of 35 per cent is a bigger jump than the entire 30 years combined between 1985 and 2015.

Porter said home prices in Chatham are now higher than those in Fort McMurray, which was once one of the hottest markets in Canada with housing prices there four times higher than Chatham less than seven years ago. Fort McMurray housing prices have taken a huge tumble since and Porter added that was a special case because the city was entirely dependent on the oil sector, which has fallen out of favour.

He said Chatham should not suffer the same fate and Chatham homeowners should not worry about losing money on their home even though they may not make as much profit by selling a few years down the road when the market is expected to cool off.

Porter added some of the long term interest rates have started to rise a bit but not enough to turn the hot market around and believes low short term interest rates will stick around for a while. However, he said policy-makers at Queen's Park and on Parliament Hill are not comfortable with the strong real estate market and he expects changes to come over time to cool down the market.

Porter also understands why there are so few homes listed for sale locally, adding skyrocketing prices may not be good news for sellers and are bad news for those entering the market.

"When prices are rising so rapidly, the last thing you want to do is sell and then find out six months later your home has gone up another $50,000 and I think that's why some sellers are standing aside," he said. "Maybe your house has gone up but you gotta live somewhere and whatever your house has gone up, the one you want to buy has gone up every bit as much if not more."

Porter said those downsizing are the real winners in today's market.

As far as when the bubble will burst and the market will crash, Porter said it's a raging debate right now. He admits things are getting stretched but doesn't believe the bubble will completely reverse itself, meaning all of the gains a homeowner has made won't be lost when things calm down.

"Some if not most of the gains will stick. I just don't believe that we can continue to see 30 per cent gains for much longer," he said. "The one thing that would bring this market to heel would be higher interest rates."

Porter said home prices have caught fire across most of Southern Ontario in the last five years for a few reasons. Near record-low interest rates, people in large urban centres moving to smaller, more affordable communities, investors looking to get into under-valued markets, and just plain old demand are a few factors, he said. Porter added people also had more disposable income last year because of government supports and a lot of that extra cash went to real estate.

"Because of all the government support over the last year, household incomes actually rose by 10 per cent last year and it wasn't because of wages and salaries. Wages and salaries were weak because of all of the shutdowns but the government support boosted after-tax household income by 10 per cent last year, that's the biggest gain we've seen in about 40 years," said Porter.

Porter also said new home construction has been steady around the country and doesn't believe it's responsible for driving up home prices. He added that if there are specific shortages such as single family homes, they won't last long.

Laura Tourangeau, president of the Chatham-Kent Association of Realtors, doesn't see the current local real estate situation changing anytime soon. Tourangeau agrees that higher interest rates will be a key factor in eventually stabilizing home prices but homeowners shouldn't worry about losing money on their home. She also said it's unfortunate that first-time home buyers are being priced out of the market.

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