The real estate market took off during the pandemic and was what many would consider red hot. There was less inventory, more buyers and homes were in such high demand that they were selling well above asking price in what felt like only a matter of minutes.

As it stands, we see that the real estate market has cooled, Canada is facing a price correction from the wild swings of COVID-19, and the current economy is a little cloudy. And that leaves the question, is it wise to invest in the real estate market? Is the real estate market too saturated?

Great questions! First let’s address what real estate investing is.

Real estate investing can take several different forms and can look like any of the following:

• Buying a home to live in personally
• Buy a home to rent out or have portion of it rented out
• Buying a home to flip and sell
• Buying land to resell or build on
• Buying commercial real estate
• Buying vacation property or short-term rentals (Airbnb/VRBO etc.)
• Investing in real estate investment trusts (REITs)

And within these different options your role could look very different. Whether you buy a property to do short-term rentals on a site like Airbnb or buy and rent out a triplex, your level of involvement can very. Or perhaps you’re more interested in investing in real estate investment trusts (REITs) and you want a more hands-off approach to real estate investing. These are all options. The great thing about investing in the real estate market is that there are so many different opportunities that can meet different needs and interests.

Why do people invest in real estate?

Investing in real estate has long been a reputable addition to one’s investment portfolio. Real estate investments can offer many benefits including long term value appreciation, consistent cash flow, tax break advantages, and building equity. While the housing market fluctuates, the real estate market tends not to be too volatile, making it a more conservative investment. Investing in real estate makes for a well-calculated long-term investment strategy due to property appreciation. Real estate investments are also a great option for those looking to diversify their portfolio. Since the stock market and real estate market tend to operate on varying trends, having a real estate investment in your portfolio can help balance the volatility of the stock market.

What does saturation look like in the real estate market?

First, let’s get clear on what a saturated market means and what that could look like in the real estate industry. A saturated market is an economic term that simply put means a given product has exceeded the market demand. In real estate a saturated market refers to more houses up for sale then people buying. More people wanting to sell and less people wanting to buy.

As we look to the current real estate landscape it is clear that prices have come down and homes are no longer going for double the asking price. And while we have seen home prices level out, over 2022 and into 2023 we have seen interest rates climb.

The spike in interest rates have left many, who may have considered buying, to continuing renting as a more affordable option. With higher monthly mortgages many have no option but rent at the moment. With this we’re seeing a greater demand for rental options.

According to a report by RBC, Proof Point: Is Canada becoming a nation of renters?, shares that within the past decade, the number of renters has actually grown 3x faster than homeownership. The report also shares that millennials are also renting for a longer period of time, on average 3-5 years, than previous generations.

Today there are more barriers of entry into homeownership despite efforts and policies on the government’s behalf and the current price correction, the landscape and scope of the real estate market is largely renters. And it is not just millennials opting to rent, many regardless of age consider it a more feasible option.

Is it wise to invest?

Those interested in investing in rental properties may have quite profitable success as they capitalize on this large market of renters. While the market may not be as hot as it previously was, and is currently experiencing some saturation, investing in real estate has been and will continue to be a sound investment for many. From long term appreciation, building of equity and wealth, tax breaks, and cash flow, investing in the real estate market can be profitable. Investing in real estate to rent out could be a great option for a business-savvy individual who has the necessary funds.

 If you’re thinking about buying a home and living there yourself, this is still a form of real estate investment as you’re building equity. Connecting with a financial advisor to go over options that work best for your personal circumstance is always advised. As with anything there are pros and cons, however many people who have the financial means to buy opt for purchasing a home and building their equity as opposed to continuing to rent and not seeing the return of their investment.

Final Thoughts

While technically the market has seen a slowdown and there are less buyers, real estate investing still stands to be profitable. There is no one way to invest in real estate and this more conservative approach is a great way to diversify and balance out any investment portfolio. With any investment do your research and work with trusted professionals to make the best strategic and informed decision for you.