What’s news in Canadian Real Estate these days is seemingly nothing but a continuation of what’s been news for the past 7 months or so. That being a progression from the market being in a lull, to it being so profoundly cooled by dropping median home values and meteoric losses in the value of investments in Real Estate. Yes, that is not necessarily a bad thing and there will be more affordable homes available, but as we always preach you don’t want to be going to either extreme end of the spectrum when it comes to home values.
So here we are with the CREA (Canadian Real Estate Association) reducing its forecast for home sales this year and lowering its expectations for price growth. BC for example has had some of the hottest real estate in the country for decades but as of now the BC home sales forecast is set to go down by about 34% this year and is foreseen to be going even lower through 2023. Having much the same thing happening elsewhere in the country – although maybe not to the same extent – is going to have all sorts of ramifications and more than a few of them are being felt already.
One of which of course is fewer homes going onto the market and owners decide now is not the time to sell, and there’s always a trickle-down effect with that. It may mean that some of the homes that do go onto the market are more hotly contested and sell for over asking. That may be of great benefit to that listing realtors, but there will be fewer listings to be had in general for the rest of them and that is what makes our online real estate lead generation system here at Real Estate Leads such a good choice. It can counter that downturn by putting you immediately in touch with potential clients.
But enough about that for now, what we’ll do instead is swing back onto our topic for this week’s entry and go into more detail about how things are not so good with the drop in homes and home values.
20% Fewer Home Sale Transactions
The CREAS foresees 532,545 properties will have changed hands in Canada once this year is done, and if so that will be a 20% decrease from the 2021 annual record. A similar forecast is for national average home prices is rising by 4.7% to $720,255. All of this is against the backdrop of their June forecast where a 14.7% decline in sales and a 10.8% increase in the national home price was predicted. Then just last month (August) it was reported how home sales had gone down just 1 percent since July but were 24.7% lower than they were for August 2021.
The only other upside there might be how the national home price has gone (from $637K+ in August ’22) but if homes aren’t being sold it can and will be tempering that enthusiasm seen in everyone in the industry. We did see national sales hold steady month-to-month for the first time in August since February, and with that paired with stabilization of demand/supply conditions in many markets there can be at least some hope that this trend is near running its course.
But in many markets, and Toronto being one, housing conditions have cooled in the last few months as climbing interest and mortgage rates suppressed sales activity and started to affect prices. One undeniable good from all of it is in the way interest rate hikes have made bidding wars much less savage and there is more reason for would-be buyers to be waiting on even further price drops.
Concern Around Falling Home Values
The biggest issue when it comes to the average homebuyer is how falling home values are creating real concern for people who bought home and took on mortgages based on the value of a home that doesn’t exist anymore. There are many of them who received their pre-approvals before the Bank of Canada’s tightening and are now facing the reality of their home having lost about 10 to 20% of its value and just shortly after they purchased it.
Enormous interest rate shock is being absorbed, and you need to go way back to the late 1980s to find the last time a similar one-year increase in the carrying cost of an average home purchase in Ontario was a reality. We likely haven’t begun to see the full ramifications of what is really the most pronounced tightening of housing conditions in a generation, but it is true that there truly are forces here that are beyond the control of the industry itself.
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