A Realtor’s Perspective on Current Trends
By Shay Mohamed
In the world of Canadian real estate, change is the only constant. As realtors, we’ve been closely monitoring the recent shifts in the market, and it’s clear that we are entering a new phase characterized by softening conditions. In this blog, we’ll delve into the key factors affecting the Canadian real estate landscape and what we anticipate in the near future.
Higher Rates Weighing on the Market
One of the most significant factors influencing the current real estate climate is the impact of higher interest rates. This shift has rippled through virtually all markets, causing a reevaluation of property dynamics. The Royal Bank of Canada (RBC) has issued a warning based on October data, revealing a decline in existing home sales and a simultaneous rise in housing inventory.
Declining Home Sales and Rising Inventory
Existing home sales dipped by 5% in October alone, marking a 12% decline over the preceding four months. This decline in sales activity is concerning and indicative of a weakening demand for homes across the country. Simultaneously, the housing inventory has begun to expand, contributing to downward pressure on home prices.
Price Decline Gathers Pace
Perhaps one of the most significant shifts is the acceleration in the rate of price declines. In October, the price of a typical home fell by 0.8%, doubling the pace of decline compared to the previous month. If this trend persists, it may result in negative annual growth.
Robert Hogue, RBC’s assistant chief economist, attributes this broad decline to higher interest rates and affordability challenges. Notably, provinces with the highest property prices, such as British Columbia (BC) and Ontario, are seeing the most significant impact.
Ontario Leads the Market Lower
Ontario, once the leader in the exuberant Canadian real estate market, is now experiencing a reversal of fortunes. Rising interest rates, which previously supported rapid price gains, are now dampening activity. Home resales in Ontario have fallen for the fifth consecutive month, reaching levels not seen since the Great Financial Crisis (excluding the pandemic period).
It’s not just Ontario; other regions that initially resisted the national slowdown are beginning to show signs of weakening. Alberta, for instance, saw existing home sales decline by 8.3% in October.
Continued Softening Expected
As realtors, we anticipate that the Canadian real estate market will continue to soften in the coming months. While the market initially surged in response to falling interest rates earlier this year, the current macro-environment is markedly different. High interest rates, affordability challenges, and economic uncertainties are keeping homebuyer demand subdued, particularly in high-priced markets like Ontario and BC.
Looking ahead, we foresee this trend persisting into the next year. Higher interest costs are likely to motivate more sellers to enter the market, potentially giving buyers more negotiating power. This could set the stage for further price declines in Ontario and BC.
Market Warning and Future Outlook
The warning from RBC suggests that this market weakness may not be isolated. A turnaround is not expected until interest rates begin to ease, and the first Bank of Canada policy cut is not projected until mid-2024. This outlook aligns with market expectations of a policy rate that remains stable despite falling bond yields.
In conclusion, Canadian real estate is in the midst of a significant shift. As realtors, it’s essential to stay informed about these evolving market dynamics to provide our clients with the best guidance and support during these challenging times. While the current landscape may pose challenges, it also presents opportunities for both buyers and sellers to navigate this evolving market wisely.