Peterborough has a new title: Most Overrated City for Housing. This comes after Moody’s Analytics released its assessment of home price ratings for the fourth quarter of 2021.
Peterborough ranked top as the city with the most overvalued housing market in Southern Ontario with an excess value of 107.8 percent, just ahead of the St. Catharines-Niagara area with 106.9 percent.
House prices have continued to rise above expected trends, a sign of an overinflated market, the assessment said, pushing prices higher and pushing more people out of the already expensive real estate market.
With an average price of more than $864,000 — a sharp increase from 2019, when average home prices hovered around $416,000 — first-time home buyers in the market are the most vulnerable due to limited choices and runaway prices .
The average household income in the Peterborough area is just under $70,000 after tax, meaning people in the Peterborough area are under pressure to afford rising housing costs.
Based on that median income, a household would typically be able to get a mortgage of around $300,000, which is nowhere near enough to afford a home nearby, let alone be competitive in the current market.
“I can give you our standard rule of thumb for income without putting the stress tests and other debt owed in place. Someone who came in at any point in the last five years and made $50,000 with no observable debt could pre-approve $250,000,” said Christina Ward, mortgage broker at Dominion Lending.
Ward added that these numbers are very fluid in terms of what’s happening in the market and what people can afford based on their stress test.
She said many people who can’t afford in this market are turning to multigenerational homes, which include any number of generations of a family sharing a home to meet monthly expenses.
Ward notes that it’s not the only option she’s seen for people looking to enter the housing market and who are buying a home for the first time.
“We see people doing ownership pools where they have three friends who want to get into the market,” she said. “They’ve gotten too expensive, so they get together and buy a house and their families live in it.”
The overvaluation in Peterborough can be attributed to the surge in real estate investors, whose numbers have doubled in recent years.
“In 2021, the number of investors in the market was double what it was in 2020, according to the material,” said Paul Armstrong, author of the Housing is Fundamental report.
“Investing in the market doesn’t include people buying the house to live in, we’re talking about investors who see property as a commodity.”
Armstrong said there are many factors that contribute to the overvaluation of residential property, particularly in the Peterborough area, are real estate funds.
“Big real estate mutual funds attract money from investors, usually conservative investors. They don’t want to invest in something too risky,” Armstrong said.
“The money goes into the real estate investment trusts, so anyone who buys shares in a real estate investment trust is an investor, they’re the one driving the market up.”
Armstrong is also concerned about how real estate agents do business when it comes to accepting housing offers.
“There will be a stipulation put in place by the listing agent that says you can make offers, the offers will be sealed and will not be opened until such a date,” Armstrong added.
In this bidding method, known as blind bidding, potential home buyers speculate on what others are bidding to try to blindly outbid other potential buyers, increasing market value and leading to overvaluation of properties.
Armstrong said this creates a speculative market. “Offers should come in, owners should look at them and be able to accept an offer when it comes out,” he said.
“But that’s not how this thing is orchestrated at all, it’s an accomplice that drives the market.”
Armstrong states that the whole idea of blind bidding is immoral and should be despised, and if governments really cared about this problem they would put a stop to it.
“If we had governments that care, they would try to do something about it,” he said.
“They would stop this whole methodology of having people make a bid, a bid that’s being reviewed, rather than this idea that there’s a date that we’re going to look at these, and that’s the date for the auction.”