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Housing Market Slowing Down

by Heather McDowell on 13 Oct 2022

Is the Canadian Housing Market Slowing Down?

During the first week of September, the Bank of Canada increased its target for the overnight rate to 3¼ percent, with the Bank Rate at 3½ percent.

The Bank is also continuing its policy of quantitative tightening; so much so that Bank of Canada Governor, or as some may call him Chief Economist for Canada, Tiff Macklem took to Twitter on September 26th to explain why Canada needs interest rate hikes.

Both Royal LePage and Redfin agent representative opinions expressed report Canada's housing market slowdown continues as it dropped 5.3 percent in July, marking the fifth consecutive month-over-month decline in sales volumes.

But What is the Cause?

Has the bidding war and trend of price growth that reached a record high in many markets earlier this year lessened because fewer people are looking for homes (there's no longer a strong demand), fewer home tours, no active listings, and prospective buyers are not able to come up with a down payment or qualify for mortgages, more homes than expected on the market, high housing prices, higher costs of closing, home sellers offering fewer homes for sale, bad time of the season, median sales price change such as high prices or significant price declines?

While May is typically a strong month for home sales, the Mortgage Bankers Association and the National Association of Realtors noted that the volume of homes that sold declined precipitously during that month, with fewer sales by 20 percent compared with the same period a year ago.

A report found that although each of those is contributing factor, the slowdown is mainly due to inflation exceeding normal levels.

In an effort to curb the detrimental impact of extremely high inflation, there have been several interest rate hikes. While continued interest hikes compared to the incredibly low rates last year, in fact, the last few years may be a tough pill for buyers to swallow, it leads to unsustainable high prices.

The slowdown means, according to many a chief economist, that the economy is showing signs of stabilizing and price cuts in residential home sale numbers are a much-needed remedy to the housing affordability crisis.

Has the Housing Market Slowed Down in Ontario?

A May housing market report for the Greater Toronto Area (GTA) alluded to signs that things might actually be cooling off, in not only the region but in much of the country as well.

However, things have solidified that assertion (much to the chagrin of Redfin agents and sellers alike) in recent months as the real estate market has seen double-digit drops when compared to the same time last year.

CREA has credited much of the market’s dip to the increased cost of carrying a mortgage after Canada’s key interest rate was increased by one percentage point in mid-July, the largest hike the country has seen in 24 years and then again in September.

According to the Building Industry and Land Development Association, things are "slowing down" for GTA's real estate, and if you're wondering what exactly that means, they are pointing specifically to the number of new home sales in the region.

That means that the demand by would-be homebuyers has decreased and led to significant price cuts both in residential resale and new home builds. Does this mean that you can finally afford a home in the San Fransisco Bay Area or downtown Vancouver?

The Housing Hangover

The market for housing has changed significantly. After nearly two years of soaring demand, high home prices and a re-sold inventory, real estate has begun cooling.

The Canadian Real Estate Association will be the first to tell you that the housing market has not crashed, but it is feeling a hangover (they might word that part differently) as prices have decreased, in some areas below their lowest level in years.

Mortgage rates are up almost 21% from the previous year. More people have started looking for homes at higher prices than ever. Home Sales dropped by 5% year-over-year.

Rethinking Housing Intentions

Higher borrowing costs are causing people to rethink their housing intentions, triggering what one senior economist at the Bank of Canada called a “sharp slowdown” in the housing market.

This is leading some to speculate that prospective buyers are holding out for further drops that some anticipate could materialize in the fall, while sellers are deliberating whether they should try to get what equity that they can from their home now, or wait for the market to turn in their favour.

Higher mortgage rates and affordability concerns are cited among the factors that slowed the economy. It's been said that home ownership is becoming a little more expensive.

Upscale Home Sales Volume Down to Where it was Before the COVID-19 Pandemic

The housing market in Canada continues to cool off after the pandemic began causing the housing market to drop off, affecting nearly 250,000 people, according to some reports. The slowing is affecting sales in upscale homes both north and south of the border and they are back to the same levels as in the past, realtors told The Washington Daily News.

We all know that if you want to buy a home without having cash, you need to take out a mortgage.

With the steep increase in mortgage rates in such a short term as we've seen, it is difficult for people to get borrowers loans and higher payments for those who are.

When rates were at record lows, many could afford higher-priced homes as low rates compensated for an increased asking rate.

The Home Buying Experience is Changing

High rates and prices have pulled many sellers from this sector which presents opportunities for those staying in.

According to the market – and even neighbourhood scuttlebutt– sellers may even be more willing to make the deal easier than they had before. They may face an extremely challenging market.

Pro Tip: Avoid Being House Poor

Think about your financial situation before you jump into a home. Don't sacrifice your other finances for your home now. Many buyers feel the urge to jump in out of fear that if they wait any longer house ownership will never be affordable.

Be Financially Ready to Buy

Buying a house is more complicated than finding listings. It begins with making certain that you are financially able to buy and what you are able to buy.

Making an appointment with a lender regarding your financial fitness now so that when market conditions are favourable for you is sage advice; in so doing, you've done all of the legwork to be able to hit the housing market running.

Find Help

There are other things about your home search that may also help you to save some money. Some cities and provinces offer first-time home buyer assistance programs and rebate programs that cover some upfront costs or provide tax deductions to help ease the purchase price of your dream home.

Search for a leader or realtor that has up-to-the-minute knowledge of such programs so you don't leave money on the table. You must find a good lender who knows the program well. An experienced mortgage broker can help make your closing day easy for you and save you some money.

Think Smaller

People like the notion that houses are castles. When they are having difficulty finding an affordable home, particularly with mortgage rates being what they are, they may fall prey to the temptation of settling on a full house when they have the condo budget.

Your home may not be perfect, but you may have some improvements in your budget and can take advantage of home improvement rebates that make it feel new.

You can always buy a house and upgrade the home over time. It may not contain everything you need, but sometimes it's helpful to do a little self-reflection to examine whether your needs actually want in disguise.

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