What’s up, Windsor?

by Clayton Jarvis17 Dec 2019

The southwestern Ontario real estate market has been all kinds of hot for the last two years, with communities like Chatham-Kent, London-St. Thomas and even Sarnia dealing with a dizzying combination of plummeting inventory and skyrocketing prices.

Windsor-Essex was the first of the region’s housing markets to take a massive leap forward, although “dragged” may be the better term. In 2016, amidst a search for affordable markets with upside, Toronto-based buyers descended on Windsor. The money they poured into the area created its own sort of gravity that warped the Windsor market into the shape its in today, one few residents recognize.

“For so long, we were dormant. And that’s the problem,” says Krista Klundert of RE/MAX Preferred Realty. “From 2008 to about 2015, nothing happened, so our prices from 2008 to 2015 were stagnant.”

Starting in 2016, prices started their steep upward trajectory. The average price of a house in Windsor-Essex in November was $333,860, 15.8 percent higher than a year ago. The rapid price growth has left a confused market; one where local buyers can’t wrap their heads around the new status quo and sellers think any offer they receive will be $50,000 over asking.

That may have been the case in early 2019, when multiple offers were still the norm. But Klundert says sales are “starting to peter off.”

“First, the slowdown was anything over half a million dollars,” she says. “Those properties started to sit again. Now, it’s come down to about $350,000 where properties are starting to sit.”

That means more and more buyers are now targeting Windsor’s highly attractive sub-$300,000 price range, where most of the area’s lucrative student rentals reside. “Anything under $300,000 has gone bananas,” says Klundert.

She feels part of the reason for buyers setting their sights on lower-priced properties is the fact that Fiat Chrysler is still scheduled, despite multiple delays, to cut the third shift at its Windsor-based minivan plant, a move that will directly result in the loss of 1,700 jobs.

Such a chilling turn of events underscores the slow economic and population growth that has plagued Windsor-Essex for years. Those trends won’t be reversing any time soon, making smart, non-student rental plays in the area a little harder to put faith in (and a lot harder to pay for) than they were a few short years ago.

But Klundert says investors still have multiple options for generating cash flow in the area’s historically tight rental market.

Targeting families in South Windsor, home to some of Canada’s most acclaimed high schools, has proven a worthwhile endeavor if investors can avoid getting sucked into a cash flow-destroying bidding war. Homes in the area regularly sell for more than the local average, but they also rent for around $2,300 a month, mostly to families who move to the area solely for the educational benefits.

Klundert warns that some of these areas in South Windsor are becoming “renter’s alleys”, where property maintenance is lagging and price growth is subsequently suppressed.

An alternative is East Windsor, which is more centrally located than its name implies. This family-friendly spot provides residents all they need in terms of big box retail and highway access to the rest of the region.  The average price of homes in the area is around $300,000, but investors shouldn’t need to lay that much down.

Klundert recently picked up a “teeny tiny three-bedroom, no basement, one bath, not even a garage” for $182,000 in August. Within two days, she received 12 applications from prospective renters. She’s currently renting it out for $1,600.

With 2020 about to ride in on a wave of economic uncertainty, the gains experienced by the Windsor-Essex market could be set for a slowdown. Sales are expected to increase by single-digits next year. Klundert expects the average sale price to stay within $10,000 or $20,000 of where it is now.

“We hope that this market continues to increase,” she says, “but be aware: if you’re paying more than the asking price, there is a chance that in a few years, when it comes time to sell, you could just break even.”

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