Housing markets are falling deeper into a slump despite increasing property prices, suggests a new report by The Real Estate Investment Network.
According to The Real Estate Investment Network’s COVID-19 Special Edition: Real Estate Cycle Update report, economic impacts of the COVID-19 pandemic is the primary reason major housing markets in British Columbia, Alberta, and Ontario have fallen further into the real estate slump phase.
These findings are based on many research methodologies including The Real Estate Investment Network’s Economic Turmoil Formula and Real Estate Cycle Scorecard. Both resources highlight rapidly evolving changes of the underpinning economic fundamentals affecting real estate markets, such as GDP, employment, and population. The report indicates the continued impact of COVID-19 on these driving indicators has moved most markets further into the slump phase.
“At first glance, it might look like the data is pointing towards a market boom because in many key cities, real estate values have been, and continue to, increase,” explained Jennifer Hunt, vice-president of research, The Real Estate Investment Network. But this is all smoke and no fire. This is is a common misconception since characteristics of the boom and slump phases of the real estate cycle sometimes overlap and can be confusing to many if not most people. When looking ahead, the signals indicate markets are further entrenched in the early phases of the slump, so homebuyers and investors are wise to proceed with caution.”
The real estate cycle functions as a predictive tool to determine which phase a specific market is currently in based on driving indicators and market influencers. The report shows where specific markets are at in the real estate cycle including which investment tactics are best suited for each phase.
“It’s common to have rising real estate prices in the early stages of the slump phase,” added Hunt. “Even while prices in many markets are still rising, prices are not the only indicator. Most other data are now pointing at a slump.”
According to REIN, when determining the real estate cycle of a particular region, it researches at least 16 different indicators. In addition to real estate values, REIN includes data such as GDP, employment, net migration, rent price, vacancy rate and housing construction. See the Real Estate Cycle Scorecard, which lists the indicators taken into consideration when determining the real estate cycle.