The bear market in Canada has been particularly severe this past year, with stock prices plummeting and no clear end in sight. Consequently, the beginning of 2022 saw the start of a significant slowdown across the country’s housing markets, as the Bank of Canada increased interest rates to fight inflation. The current status of the housing market is the result of a chain of events that can be traced all the way back to 2019. A combination of low mortgage rates and an undersupplied market provides ideal conditions for demand to exceed supply. Moreover, higher borrowing costs and an unhelpful labor market signaled the end of the housing boom in 2022, when the Bank of Canada decided to raise mortgage rates to rebalance demand versus supply and ease the effects of inflation.
The Governing Council of Canada is anticipating that the policy interest rate will need to increase further in light of the current high levels of inflation and the persisting pressures on the economy from rising demand. As a result of the increasing rate, the prices will continue to decline. The current situation of the Canadian housing market affects the whole country and particularly the most populous province, Ontario, which sees the maximum home sales annually. In December 2022, the average home price in Ontario dropped to $1,051,216; a decrease of 2.6% from the previous month and 9.2% as compared to the previous year.
We believe this may be an apt time for cautious investors and homebuyers alike to come out ahead by taking advantage of the declining prices and low-risk investments available. The night is always the darkest before the dawn. This dawn is truly before us as the current circumstances surrounding the housing market present themselves as an advantageous platform for first-time home buyers.
According to Mr. Manoj Karatha, Broker of record, The Canadian Home Realty Inc., “It is a very opportune time for first-time home buyers to get in the market especially if they choose a mortgage with variable interest rate”.
What potential homebuyers need to understand is the fact that the Canadian real estate market is always in a state of flux. Hence, a variable interest rate mortgage would help them minimize the effects of rising interest rates as it will fall under 3% on average. Even if a buyer decides to buy a house in the present market taking advantage of falling prices, the effective interest rate, in the long run, will be lower as the market is bound to stabilize in the coming years. He further adds that the recovery will be mixed, with cities that witnessed the greatest price increases during the pandemic expected to have the greatest price adjustments.
Based on the sold data provided by TRREB and ITSO, cities like Brampton, Burlington, Brantford, Cambridge, and Caledon have witnessed a sharp price drop in the previous year and could be considered great investment options at this point in time. Home buyers can consider looking for housing and investment options in these cities.
Data from 25 most populous places in Ontario | Source: TRREB
According to Mr. Robin Cherian, CEO, The Canadian Home Realty Inc., “the Bank of Canada is expected to increase interest rates, and two further revisions should be expected before the market stabilizes. According to Statistics Canada, 104,000 jobs were added in the month of December 2022; pushing down the unemployment rate by 5.1%. The job market can potentially start to stabilize and a better employment market will increase people’s buying power. As more jobs get added to the economy, the inflation’s impact will increase; forcing BOC to increase the rates again. With increasing rates, the prices will continue to decline, we can expect a 2-3% drop in Q1 2023.”
What is going to happen in 2023?
It will be a great time for first-time home buyers to look into entry-level houses like Condo apartments and townhouses. The government of Ontario has a First-Time Home Buyer Incentive Program to support homebuyers by providing a loan of 5 or 10% of the purchase price of their home to cater to a down payment. It is also a great time to upgrade for those who have equity in their current homes or have saved up for the down payment to invest in a rental home.
Despite how bleak things may seem right now, we may rest assured that things will improve—however, just not right away. There have been discussions of a catastrophe in the property market, with a predicted 30% decline in home values by spring 2023, however, we don’t see that happening.
Source: TRREB
According to Mr. Rohith Mohandas, COO, The Canadian Home Realty Inc., “The rental market in Canada is too hot and demand for rental accommodation will only increase. Canada is expecting a record number of immigrants over the next three years. As per the recent numbers disclosed by the government, the country will accept 485K applicants in 2024, and 500K in 2025. The increased influx of immigrants will generate huge demand for rentals and we thereby don’t see any panic selling happening in the market. This will help the housing market recover from its present plight by driving up long-term property prices.”
The road to recovery might look long but we are already halfway there and things look quite promising. We can expect the market to stabilize by the end of the year 2023.
