Housing prices in Canada have been volatile lately. Some experts suggest a crash may be coming, while others suggest there’s plenty of room for growth. But while the economists bicker, homebuyers and home sellers are scratching their heads, uncertain what to do in this period of clear economic volatility.
What should be your approach as an investor? Is now a good time to buy? Or should you avoid timing the real estate market altogether?
The Risks and Rewards of Volatility
First, you should understand that economic volatility always comes with potential risks and potential rewards. Excitable investors often drool at the prospect of volatility, since it leads to so many exciting plays. If prices are rapidly shifting, it gives you the potential opportunity for a big win; if you buy at a low point and prices skyrocket, you can cash in for a major gain.
Conversely, of course, it’s possible that you end up buying at a high point, suffering catastrophic losses when prices subsequently plummet.
Accordingly, investing in a volatile environment isn’t inherently good or inherently bad. It’s simply volatile, which means it’s a high risk, high reward environment that isn’t suitable to all investors.
Why Real Estate Is (Almost) Always a Good Long-Term Investment
For the most part, investors consider real estate to be a good long-term investment, despite temporary periods of volatility and limited crashes.
These are some of the reasons why this is the case:
- Income potential. Owning property gives you the potential to generate income. If you rent your property to a tenant, you should be able to collect rent that exceeds what you’re paying to maintain that property on a monthly basis. With the help of a property management firm, you can also bypass most of the responsibilities you’ll have as a landlord, minimizing the time you spend and reducing your stress in the process. This makes rental property one of the best sources of passive income, and one that can weather even the harshest economic environments.
- Long-term appreciation potential. Historically, real estate prices have risen consistently when you look at them over the course of decades. Even though there are multi-year stretches with declining or stagnating real estate prices, prices have historically always gone back to rising.
- Finite supplies. There’s only a finite amount of land in the world. That makes property a scarce, and therefore valuable resource. If population growth continues, the fixed amount of land in existence is going to become even more valuable.
- Functional utility and flexibility. There are many ways to invest in real estate and many ways to use real estate to your advantage. You don’t have to rent out the properties you own; you can also use them for other the ventures, such as flipping houses, farming, or selling the land to commercial interests.
Because of these factors and others, you can rest assured that a fundamentally good real estate purchase is going to benefit you in the long term, even if you suffer short-term losses.
Why You Shouldn’t Try to Time the Market
Volatile markets appeal to people who want to try and time the market with precision. But generally speaking, you shouldn’t try to time the market.
Here’s why:
- Nobody knows what’s coming next. Real estate has always been somewhat unpredictable – and it’s been even less predictable in recent years. Economists are flip flopping on their positions, and veteran real estate investors are shrugging their shoulders. No matter how well you think you know the market, the future is uncertain, which makes most of your timing decisions a glorified form of gambling.
- Buying property is a major investment. Most of us aren’t multimillionaires. We can’t afford to spend $500,000 on a house and lose half that value. Property is generally a major investment, and one that shouldn’t be subject to personal whims.
- Long-term thinking is superior. The most successful investors are the ones who think about the long term. And as we’ve established, real estate investments are ideal long-term investments.
So what should you do instead?
Instead of timing the market, focus on the most important fundamentals of real estate investing. Look for fundamentally good properties in excellent neighborhoods and submit bids when you don’t have much competition. Then, hold those properties for the long term. If you can do this, it doesn’t matter if you’re on a temporary upswing or a temporary downswing; you’ll win out in the end.
Canada’s housing market will likely continue to experience volatility in the short-term future. But as a savvy real estate investor, you shouldn’t try to strike it rich during this time; instead, exercise more caution and stick to the fundamentals of sound investing.
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