Following the first wave of the coronavirus pandemic, the Canadian real estate market accelerated into a seller’s market. With the Bank of Canada (BoC) slashing interest rates to near zero and the national economy being flooded with billions in fresh liquidity, fully employed households started purchasing residential properties across the country, from cities in British Columbia to small towns in Atlantic Canada. This was indeed a once-in-a-lifetime event in Canada’s housing sector.
As housing supply dwindled and demand spiked, prices responded with meteoric growth. Whether in major urban centres or rural communities, detached homes became the subject of intense bidding wars. At the peak of the pandemic-era housing boom, the national average price topped $800,000.
Since then, the Canadian real estate market has been in moderation mode, with both prices and sales activity subsiding. To paraphrase author T.S. Eliot, the 2020-2021 boom ended not with a bang but a whimper. In other words, according to the RE/MAX Canadian Real Estate Outlook for 2023, a market equilibrium is being slowly realized.
The Canadian Real Estate Association (CREA) recently reported that the MLS® Home Price Index (HPI) tumbled by 1.6 per cent month-over-month in December and dropped 7.5 per cent year-over-year. Overall, the national average home price is about $626,000. In the upcoming year, prices are expected to fall another 3.3 per cent.
So, now that the country is sliding into a buyer’s market, how will this impact home-buying trends?
Buying in a Buyer’s Market
Most Canadians (73 per cent) say home ownership is the best long-term investment, up from 49 per cent in 2021. At the same time, nearly half (45 per cent) concede that higher interest rates will “impact their ability to buy or sell a home in 2023.” Because of this, more than two-thirds (67 per cent) do not intend to purchase a home in early 2023.
However, with economic and market conditions expected to improve in the second half of 223, it might be a good time to assess the housing market, says Elton Ash, the Executive Vice President at RE/MAX Canada.
“We’re confident that as economic conditions improve and the market continues to even out into Q3/Q4 2023, a more-regular pace of activity will resume,” he said in the report. “It’s especially critical during challenging economic times, that staying informed and working with an experienced real estate professional can help Canadians clarify some of the unknowns, help them find a home within their means, and ultimately make the best decision possible.”
The hesitancy is understandable considering the uncertainty in the broader economy, but homeownership is still a “solid” investment, according to Christopher Alexander, the President of RE/MAX Canada.
“It’s good see the majority of markets moving toward more balanced conditions, which is typically defined by 45 to 90 days on market. This is a much-needed adjustment from the unsustainable price increases and demand we saw early in 2022,” Alexander stated. “Many Canadians have understandably expressed hesitancy about engaging in the real estate market early in 2023, in the wake of rising interest rates and broader economic uncertainties. However, despite this, a greater number of Canadians consider real estate to be a solid long-term investment compared to this time last year.”
Shaun Cathcart, CREA’s Senior Economist, will be monitoring how buyers respond to an increase in listings during the typically busy home-buying spring season. But he also says the central bank reaching the peak of its tightening cycle could play a critical role in the home buying process.
“It will be interesting to see what buyers do when listings start to come out in big numbers in the spring, and even more interesting to see what happens a little later then the Bank of Canada, now widely thought to be at or very near the top of its tightening cycle, starts to eventually cut rates. All the other fundamental factors needed for the market to take off again are still out there,” Cathcart noted.
Whatever the case may be, the Canadian real estate industry is ostensibly shifting into a buyer’s market. So, how can prospective homeowners participate in this type of environment?
The first crucial component is to get pre-approved for a mortgage. This gives you the confidence to purchase a home that fits within your budget.
Working with an experienced real estate agent you trust is the second critical aspect. This industry professional should know about the communities you are interested in residing in and understand the latest market conditions.
Generally, in a buyer’s market, there will be plenty of supply at your disposal. Therefore, refrain from focusing on a single residential property and look at a range of options.
Here are some other tips:
- Ensure you have the down payment (and a little more).
- Keep your search within your budget.
- Widen your desired location as there is more inventory to consider.
- Take your time since housing market conditions are more stable and do not consist of the panic atmosphere of the last couple of years.
- Make a reasonable offer – but not your best.