The Southern Ontario housing market hit a boiling point mid-March as homebuyers clambered for real estate throughout all regions with significantly more demand than supply. But now that homeowners and buyers alike are feeling the pinch of rising interest rates and record inflation, the market appear to finally be simmering down.
That, in turn, could create a welcome opening for shoppers to be more selective with their searches. However, buyers hoping for a major downturn in prices may be left disappointed. Although home values in some segments are beginning to sag under the weight of higher borrowing costs, a persistent housing shortage is expected to keep prices high.
Read on for a closer look at some of the top factors impacting the real estate market and how they could affect you.
RISING MORTGAGE RATES ARE COOLING AN OVERHEATED MARKET
Over the past couple of years, homebuyers have faced record-high price appreciation and intense competition—in part due to historically low mortgage rates that were a result of the Bank of Canada’s efforts to keep the economy afloat during the COVID-19 pandemic.
According to the Canadian Real Estate Association (CREA), in 2021, both the number of sales and average home price hit at an all-time high, with demand for new homes far exceeding supply. In The Greater Toronto Area (GTA) including the 905 regions, at the peak of selling prices in March 2022, selling prices rose by 34% compared to March 2021, even as sales declined by 30% compared to a year earlier. This trend of rising prices continued, despite widespread predictions that the Bank of Canada was gearing up to increase interest rates. Clearly Buyers were taking advantage of mortgage pre-approvals with lower mortgage rates in advance of mortgage rates increasing.
As of June 1st, the central bank has pushed its key interest rate up a full percentage point to 1.50%, from emergency levels during the pandemic. With these increases the housing market is responding, with the pace of home sales cooling since the end of March. The Canada Mortgage and Housing Corporation (CMHC) predicts that the housing market will continue to moderate in the coming year.
The Bank of Canada today warned that “it may act more forcefully” if needed to tackle inflation. This means target rates could rise by another 1 to 2% or more over the next year. That, in turn, will cause both fixed and variable mortgage rates to rise further. Since February, a $1.2 million home with a 20% down payment would now cost the buyer an additional $600 per month in mortgage payments.
As Senior Deputy Governor Carolyn Rogers noted in May: “We need higher rates to moderate demand, including demand in the housing market. Housing price growth is unsustainably strong in Canada.”
As the Bank of Canada continues pushing up rates, more buyers may give up on their homeownership dreams if they feel too squeezed by the combination of high rates and high prices. Still, many experts say a major downturn in prices is unlikely. That's in part due to the fact that there still aren't enough homes available to meet the demands of a growing population, says the President of The Canadian Real Estate Association. “The supply of new homes is not even close to keeping up with demographic changes and population growth.” As long as housing remains a scarce asset, prices will remain relatively elevated.
What does it mean for you?
If you’re shopping for a new home, expect mortgage rates to keep rising over the next year. So, you’ll need to act fast if you want to get in at a lower rate (which are still low when looking at historical rates). However, the cooling effect should make for a less competitive market. If you’ve been waiting to buy a home, now may be the perfect time to jump in the market. There are deals to be found if you know where to look. But don’t wait too long, or higher mortgage rates will erode any cost savings. We can help you find the best opportunities in today’s market.
For homeowners, the outlook is still bright. Governmental interventions are being put in place to stabilize the market–not crash it. And demand for housing and a strong job market should help protect your investment. While home prices are softening somewhat, they are still up on average 15% over last April and 53% over April 2020. Higher mortgage rates may shrink your pool of potential buyers, so don’t wait too long to list. And if you are up for a renewal, you should also act quickly or risk paying a higher rate. Contact us as we can help you determine what’s occurring in your market and the best selling strategy to follow.
INVENTORY REMAINS TIGHT
According to the CMHC, housing starts trended higher in April after a small downturn in March. Overall, new homes are still being built at a faster clip today than in the past, but at a slower pace than we saw in 2021, noted CMHC Chief Economist Bob Dugan. Homebuilders are facing a wide range of challenges, including persistent inflation, rising rates, and ongoing labour shortages.
Increased federal investment could help counteract at least some of those challenges. The federal government recently announced plans to help double the pace of housing construction over the next decade by funding significantly more new and affordable housing. It also announced additional relief measures, including a temporary ban on foreign investment, doubling first-time buyers' tax credit, and halting blind bidding wars.
In addition to fewer homes being built, new listings are also down, according to the CREA’s sales report. But a decrease in demand is offsetting the impact in some areas. “A little more than half of local markets were balanced markets…a little less than half were in seller's market territory.”
What does it mean for you?
While supply remains at historically low levels, even a modest bump in inventory can help take pressure off buyers. If you’ve had trouble finding a home in the past, give us a call to discuss what we’re currently seeing in your target neighbourhood and price range.
If you’re a homeowner, it’s still a great time to sell and cash out those big equity gains. Contact us to find out how much your home is worth in today’s market.
WE’RE HERE TO GUIDE YOU
While national real estate trends can provide a “big picture” outlook, real estate is local. And as local market experts in the GTA, Kawartha Lakes and Peterborough, we can guide you through the ins and outs of these markets and the local issues that are likely to drive home values in your particular neighbourhood.
If you’re considering buying or selling a home, contact us now to schedule a free consultation. We can help you assess your options and make the most of this unique real estate landscape.