It’s a complex answer to give, but it’s the right one if anyone is to ask what is the way to improve housing affordability and address the housing crisis in Canada. It’s increasing housing supply, because as has been explained a thousand times the key reason why housing is overpriced is because demands is outstripping supply nearly a thousand times over. That’s not going to change given the direction the country is taking, and let’s be clear – it’s not a bad direction to be taking. But the numbers that we’re going to see with population growth are going to go hand-in-hand with a worsening housing crisis if nothing is done to increase supply.

What’s needed to make that happen is housing starts, and while there’s been more traction gained there in the last year nation wide for sure it’s not anywhere near what is required. But the first thing that needs to be said is any big increase in the number of housing starts is easier said than done. Labour shortages mean that there simply isn’t the number of qualified tradespeople available for the work, and then there’s one of the biggest roadblocks to building affordable homes these days – the astronomical increases in the price of building materials.

All on top of the slew of taxes and fees required that grow quite regularly in municipalities across Canada. All of which creating an environment where we’re going to have people who in any other instance would qualify for a mortgage and are looking to buy a home. But there’s no home for them to buy. At least not one they can afford. We’ll take this week’s entry to expand on why the decreasing number of new housing starts makes affordability even more unlikely in the future.

Economic Underpinning

Housing starts fell last month (July ’23) and there are many who believe a further slowdown will present itself as economic conditions soften. This trend will not help ease affordability challenges in Canada’s pricey real estate market, and especially for those who are looking to be 1^st– time homebuyers. Recent CMHC data backs this up, showing how annual housing starts declined by 10% in July compared to previous months.

A number for that? Only 255,000 of them as of last month in what experts say is a current reality where 1.5 million new homes are estimated to be needed by the start of the next decade. This data continues the trend of ‘gentle easing’ in housing starts, but in contrast to that aggregate new construction continues to be historically high.

The consensus seems to be that a more significant slowdown is coming too, and again that is in large part borne out of construction industry labour shortages, high borrowing and material costs, weak homebuilder sentiment, and softening economic activity being what’s expected. A further expectation is that the Bank of Canada will be taking some degree of comfort in weak sales and housing starts data, especially in the aftermath of a colling economy, stagnant GDP, and core effects of inflationary pressure.

Resilient Price Pressures

What we can see in that is how the painful medicine of interest rate hikes is working to cool down economic growth and bring price pressures to heel. If economic conditions continue to soften it may be a situation where the BoC will keep it’s policy rate at 5%. If that’s the case and housing starts continue to decline then it becomes fairer to state that current trends in home building really aren’t doing much to improve affordability for home buyers.

And we can also expect to see lower housing starts in other regions negatively weighing on future supply too. Everything that this trend possibility portends for the future can – and should – put a negative focus on decision makers who seem to think that the market will rebalance itself naturally and on its own. That said, buyer prerogative plays a role in people finding homes unaffordable too, as there is more affordable housing in Canada but it’s not anywhere near the few major metro urban areas where most people want to live.

And as well all know, want and need are two entirely different things.

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Market trends and current insights into real estate in Canada is nearly always where we go with our blog here each week, but every once in a while we like to create an entry where the focus is on building up industry know-how for realtors who may be newer to the business. There are many who wisely see the need to continue right on with learning after they’ve completed the real estate license course, and we’ve also on many different occasions stated how clients will be more inclined to work with you in the future is you really know your stuff and you are assertive in informing them with it.

It’s increasingly rare that a prospective buyer will put an offer in on home without having conditions ‘attached’ to it, and of course all realtors will know this is what is referred to as a ‘subject to’ and each subject-to will need to be met or removed before the offer can proceed into a home sale. That’s what we’re going to look at here with this week’s blog entry, the most common conditions you’ll encounter during a home sale.

Being aware of them can put you in a better position to be guiding your clients whether they are the home seller or would-be buyers, and for any other real estate agents who would like to build a client base more speedily our online real estate lead generation system is an excellent resource where you can be more directly put in touch with the types of buyers and sellers where you can flex your expanded knowledge of the ins and outs of how real estate transactions work.

With that promotion out of the way, let’s get right to those most common offer conditions.

Buyer Safety Net

We can start here by relating that a condition can be anything, but both parties must agree to it. Realtors should know what conditions to recommend to buyers and sellers in various scenarios, and they should also know that conditions don’t have to be accepted by either party, but an accepted conditional offer’ is often the more detailed term that could be used when a sale is ‘pending’. For buyers, conditions are put into place because it facilitates a safety net for them, and often specifically with being protected from any legal obligation to move forward with the conditional deal.

The buyer will include a time frame for their condition(s) to be satisfied. If that doesn’t happen then the deal becomes null and void unless both parties agree to extend the timeframe or the buyer informs them they won’t be meeting one (or more) of the conditions. The standard arrangement is the buyer is entitled to a return of their deposit money if the conditions aren’t satisfied.

7 Common Conditions (Subject-To)

Appraisal Contingency

Buyers are entitled to request an appraisal of the home to compare its true value to the asking price. In the event the home is appraised for less than what the seller listed in the contract, the buyer may not receive their mortgage approval, re-negotiations may be required, or the buyer may choose to take their deposit and walk away from the sale.

Home inspections

Home inspections are always a good idea to ensure the property is structurally sound. The cost of the home inspections are usually paid by the buyer but that gives them their choice of home inspector and this is important as it needs to be a professional individual that the buyer can trust is going to give them factual information and be representing their interests.

Financing

A financing condition or clause informs sellers that the buyer’s offer to purchase the property is conditional on their being approved for financing and then obtaining it. This means that a 5-to-7 day window is created during with they wait for confirmation on their mortgage approval. This protects the buyer in the event the home appraisal comes in low and they’re not approved for the amount offered. But it also gives them a protected time frame where they can reconsider the entire purchase if there’s any reason to do that.

Escape Clause

An escape clause is usually stipulated by the seller, with the aim of providing them with a means of getting out of the agreement based on a condition. The most standard scenario where an escape clause is used is when a seller has accepted a conditional offer on their home but the seller receives better offers during this time while the existing-offer buyer is waiting for financing. The escape clause allows them to limit the amount of time required to complete the sale and go with a new buyer if the existing one isn’t able to complete within that timeframe.

Land Survey Review

A survey review is not the same thing as a home inspection. It is a surveying of the grounds the property is built on to determine if there’s any type of risk to the long-term viability of the land for a home on it. It is very advisable to pay for a qualified, chartered professional to survey the property if buyers have even the slightest concerns about possible events in the future.

Cleanliness

There can be instances where prospective homebuyers will want a deeper or more thorough cleaning of the home based on how it was when they viewed it and before they chose to place an offer through their agent.

Fixtures and Chattels

There may also be instances where the buyers will insist on new appliances or other pieces being installed or located when moving into the new home. There may be other instances where they will want a certain fixture in the home to remain there if they are to buy it.

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Classified ads can help you reach a target audience (readers of a local paper or a church bulletin.)

Advertising is a balancing act. Without it, the result is little or no new business – but on the other hand it is an expense of time and budgeting. Identifying just the right kind of advertising that works best in your area is essential, which requires trial and error. One particular advertising medium brokerages and agents have often utilized is traditional classified newspaper advertising.

Not everyone reads the classifieds daily of course, but those who are inclined to are usually in need of something specific, and that happens to us all at one time or another; especially when people are looking for homes or plots of land for sale.

If you choose to dabble in classified print, below are some tips to help you create effective real estate ads.

1. Write down a list of Headlines (within the space allowed)

If you want your ad-text to be read, this step is quite important. The fine print of your ad will just remain fine print without a headline that grabs people’s attention!

This is to make sure your advertisement targets the right buyers (or sellers) and stands out as much as possible from all the other surrounding ads.

It may be helpful to pass your headline ideas by your family or friends, through a text message perhaps, to get their opinions.

If you are selling an expensive house or condo, here are some examples:

• * Luxury Downtown House – Viewing Today!
• * Move right in: New 2/2 Condo w/Mountain Views
• * Remodeled 4/2 Home, Burnaby School District
• * New Market Gem: 3/2 within Gated Community

2. Putting the best Photo Forward

If you choose to attract eyes to your ad with a photo, which is quite effective, but perhaps cost-prohibitive depending on the newspaper, make sure it is one that will create the best effect. Almost always a shot of the exterior front of the property works best; unless it has a gorgeous kitchen or dining room. Keep in mind studies show that prospective homebuyers gaze at the photo of a front of a house longer than any inside view. Your newspaper probably only prints in black and white, yet including a photo will draw a greater response.

3. Master the Use of Abbreviations

Abbreviations save a lot of precious ad-space, but perhaps not everyone can properly translate “real estate-eze”, so some real whole words are definitely necessary too – especially words that drive an emotional response such, such as “luxury” and “views”.

Bsmt – basement ; bkporch – backporch ; Det – Detached ; Ref- Refrigerator ; wbfp; Wood Burning Fire Place. etc. There is no need to type them all here, after all, you are a real estate agent, and you already speak the language!

4. Always Include Your Link

Your phone number is of course mandatory for a classified ad but in today’s digital world a link should always be included. Google “URL shortener” for a way to shorten an otherwise longer link. This will help people view the listing online through your website and increase the chance they will call you. They will also be much better informed when they do call you. If you have a domain for the designated single property website, like 220BirchwoodSt.com, certainly use that one, or a link to your real estate agent website.

The above are the basics, but don’t be limited by the suggestions above. Your own creativity and personal flair will add additional attractiveness to your classified ad.

There’s the old adage that you get what you pay for. When it comes to a home it makes entire sense that you’ll need to pay much more for any home that’s much larger and provides you and your family with more square footage to live in. And of course a condominium is always going to make more sense financially if you’re a couple without kids and you’d prefer to be living in an urban area. That’s amplified a thousand times over in Canada considering how expensive housing is here if you do want to live within a reasonable distance of a major metro region.

So no one is going to be surprised to hear that there’s a BIG gap between median prices for condos and ones for detached homes. And for ones between condos and town homes too for that matter, especially if you’re choosing to live in the GTA or GVA. But what’s happening now is the gap between the two median prices is becoming downright enormous, and as you’d expect it’s decreasing the number of buyers legitimately qualified to buy homes and then transferring that pressure into the condo buyer pool.

Again, nothing about this is unnatural in the market, but the extent and speed with which it’s happening definitely does reflect on what’s a disturbing overall trend in Canada – housing affordability. There is no easy fix to it, but realtors who are struggling to find qualified homebuyers to work with can take advantage of our online real estate lead generation system here at Real Estate Leads to counter and significant downswing in their business resulting from any aberrational new market realities

We’re going to take the opportunity to discuss this widening chasm in home prices based on property type in Canada with this entry, so let’s get into it.

Ontario / B.C. Predominance

A recent study is indicating that house prices are more than double the cost of condominiums in 14 Canadian cities, the bulk of which are in Ontario and British Columbia. This data has been drawn from MLS benchmark prices as overseen by the Canadian Real Estate Association (CREA) and realtor associations in each local market based on the end of May this year. Property types are defining benchmark prices instead of square footage.

The takeaway from it is that it is an increasingly bleak picture for buyers looking to upsize from condos to houses. These individuals and couples are of course the exact people who realtors are frequently working with, ones who have already been first-time homebuyers and in many instances have now outgrown their condo because of a growing family or some other very legitimate reason.

Let’s start in Vancouver, where local governments are actively joining the Feds in facilitating the building of a little Jakarta on the West Coast of Canada. All in the name of ‘economy’. One has to wonder what’s the appeal in doing that, but locals at ground level are increasingly being priced out from even the most introductory of accommodations. In Vancouver, houses are now in the vicinity of $1.2 million more expensive than condos. On average this represents a whopping difference of about 153%, and even if you’re already a detached homeowner in Lotus land it should still leave you shocked and perhaps appalled too.

When the term correction is applied to a market, it’s a little bit ambiguous with what exactly that means. Most of will learn at a very young age that to be corrected is to be made aware of your error and what you should understand to be accurate instead. When it comes to markets of any sort, the average person will only claim to know that a correction means prices for whatever it is making up that market come back to where they should be.

That’s not inaccurate, but when it comes to the Canadian Housing Market it’s an overly simplistic view of it. The reason for that is that there are so many variables that factor into the market and it’s not like housing is anywhere near a basic commodity. We don’t need to into that here, but economists and realtors alike will have a more inherent ability to see into the market and understand all of the different contributors that go into determining what would be the natural state of the market.

It really is about as grey an area as can be though, and the one area where people will be inclined to agree or disagree is how detrimental it is when government intervention factors into the state of the market, and distorts what would be seen as a ‘natural’ housing market correction. But at ground level what agents and their clients will see is median home prices coming down, but a lack of supply meeting huge demand creating a scenario where homes nearly always sell for over asking.

This take a great number of would-be buyers out of the game, and for realtors who struggle to drum up first-time homebuyer clients our online real estate lead generation system here at Real Estate Leads is an excellent way to get better results in this regard and build your real estate business – no matter the current state of the market. We’ll now continue to discuss why many are saying the current market correction isn’t anywhere near done.

Continued Decline Into 2024

Canada’s real estate correction hit pause after the central bank promised a pause on BoC interest rate hikes in January of this year. So at that time it looked like home prices had bottomed out after falling more than 17% from a March ‘22 peak. Home prices quickly moved in the opposite direction, and going up by tens of thousands monthly with the release of pent-up demand for housing.

But now some 7 months later, we are seeing that prices in key markets are dropping, as the latest hike rate hikes went against that promise of a pause but – in fairness – were needed to continue the fight against high inflation in Canada. So the overarching belief coming out of this is that Canada’s housing downturn or ‘cool off’ isn’t even as close to being over as many think.

There are some who foresee home prices going down by another 10% or so by the first half of 2024. If that projection materializes then a typical home across Canada will have dropped between 20% and 25% and that lines up with their earlier forecast at the start of the correction.

The bounce back seen in January is unlikely to occur again, and one of the best indicators of that is the way that typically real estate corrections are accompanied by rising unemployment plus declining consumer demand. That wasn’t seen here with first half of the correction, and that’s because Canada had an economy that outperformed expectations. You won’t have increasing unemployment or reduced demand when an economy is doing even fairly well.

Canadian Mortgage Rates to Go Up Too

Canadian mortgage rates have been comparatively quite low for a long time, and much has been made of the ramifications of when it’s cheap to borrow money. That’s another tangent we don’t need to go off on, but what we would say here is that the Bank of Canada is also likely to raise rates again, and what this is expected to do is raise mortgage rates to an expected 6.1% by Q3 for 2023.

Higher costs are already promoting investors moving away from real estate investment. There are estimates that residential investment’s will expand on the 3.9% quarterly decline that was recorded for the first quarter of 2023. The expectations are that through next year construction, renovation, and home resales will slow even more as financing costs rise and investment returns have less luster to them.

Other economists will say that in the event that a correction is mitigated, a larger correction will be required and not too far down the road. This is a tradeoff for short-term satisfaction that will always come at the risk of more economic damage.

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