One of the things you can pretty much count on from one year to the next with the housing market in Canada is that sales will always pick up in Spring. People have wondered why that is, but it may be as simple as folks being enamored with the warmer and sunnier weather and imagining what it might be like to have a backyard or rooftop patio for the upcoming summer season. The cyclical nature of that factors into sellers sell homes and from the buyer end it’s more prospective homeowners who are buying homes rather than investors at this time.
Real Estate Agents will have expectations based around the trend too, and anytime those expectations don’t come to be then there may be something of a disappointment with how many homes that realtor is selling or how many new clients they’re putting in homes. Real Estate is an unpredictable business at the best of times, and even if you considered the overheated market of ’20 to ’22 to be one of those best of times.
But even when a downturn of any sort is the reality our online real estate lead generation system here at Real Estate Leads is an excellent way to help realtors weather the doldrums in the real estate business that do come from time to time. And that’s just what we may be in the beginning of right now for Spring 2023 as home sales are not picking up the way they used to at this time of the year.
That’s what we’ll dig deeper into with our blog entry here this week based on a report from the Royal Bank of Canada.
Interest Rate Influences
It is Canada’s largest bank, and it is expecting a slow start to the spring housing market based on the prediction that higher interest rates will continue to dissuade many buyers even though there’s been a considerable drop in prices.
The reality is a 16% drop in the benchmark home price over the last year, but the $704K CAD average is still darn close to 30% higher than it was at this time in 2020. The consensus is that in order to get home affordability back ‘in check’ as much as that is possible conceptually is to have prices may have to fall further or mortgage rates will need to see a drop.
Insufficient supply is also definitely a factor. There really isn’t as much in the way of home inventory on the market that’s available for these would-be homeowners to buy. Newly-listed properties were down 8% in February compared with the month before, and at the same time the inventory of available homes dipped to the lowest it’s been in the last 4+ months according to the CREA.
Then there’s also been a noticeable slowdown in consumer activity and business investment that is made in response to the higher interest rates. Something that was bound to happen one way or another when the Bank of Canada moved fast and pronouncedly when bumping up its overnight lending rate from 0.25 to 4.5%
Uncertainty from Slowdown
It would seem that buyers of all sorts remain apprehensive because the slowdown is still here and continuing, even if it has weakened. It certainly is being seen in volumes, and when you ask around in the business the one term you hear over and over again is buyer uncertainty. It’s going to be an undermining factor all through this spring real estate season it seems, and a lot of this goes back to early March when the Canadian central bank kept its key rate untouched for the first time in a year.
The stated logic for that is that policymakers need time to assess how consumers are adjusting to higher borrowing costs, and that part of it does make sense. Mortgage rates from both RBC and TD are in the vicinity of 5.5% for borrowers who want to lock in their costs for 5 years. Variable mortgages will be more expensive than that, for obvious reasons and that is another deterrent for anyone who feels that’s the only realistic way for them to go with taking on a mortgage.
The CIBC has the highest share of domestic residential mortgages and HELOCS in Canada with 54% of those net loans. RBC is second with 51% of them, but the significant stat here is that around 78% of RBC’s Canadian housing exposure remains uninsured. The uninsured portfolio has a low loan-to-value ratio of 50 per cent, however, which should in theory put in place a buffer that should absorb some of these house-price declines.
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