This summer has been a time for stabilization in the Canadian real estate market. Home prices levelled out, inventory inched upward, and buyer hesitancy returned to soften sales. Now that summer is almost to an end, what might we see happen in the fall market? Here are the 5 market predictions our real estate experts have their eyes on:
Investors and Buyers to Jump Back Into the Market
Following the spring rebound, national sales began cooling off and declining, that gave new listings a chance to return to healthier levels. Seasonality can somewhat predict the rate of activity in the real estate market and the two hottest seasons tend to be early spring and early fall.
Most people put their homebuying plans on hold in the summer, but buyers – both investors and homebuyers – will be back from the summer hiatus with renewed energy and focus.
With that being said, sales activity for this summer has surpassed last year in most major markets, including Greater Vancouver, Greater Toronto, Calgary, and Hamilton-Burlington. So, although activity has slowed, it is still an improvement from 2022 and an indication that interest rate hikes are not deterring motivated buyers.
Annual Inventory & Sales Growth
Sellers Playing a Waiting Game
In the upcoming fall real estate season, buyers and sellers are displaying differing attitudes and strategies. Buyers are gearing up with renewed vigor, anticipating an active market, but sellers are adopting a more cautious and deliberate approach. Their reluctance stems from several key factors, with the foremost concern being the impending rise in interest rates. The fear that higher borrowing costs may deter potential buyers is causing many homeowners to hesitate when it comes to listing their properties. This sense of uncertainty has prompted sellers to adopt a watchful stance, deferring their listing decisions until they gain greater clarity regarding market reactions to interest rate changes.
Another substantial contributor to sellers' caution is the relative quiet that characterizes the real estate landscape during the summer months. Traditionally, summer tends to witness a slowdown in market activity, as families take vacations and transactions decelerate. This lull, combined with the ambiguity surrounding future price trends, has reinforced sellers' inclination to exercise patience. September, in particular, looms as a pivotal month, offering sellers the opportunity to assess market dynamics. By closely monitoring this period, sellers aim to make well-informed choices about when and how to list their properties, seeking to capitalize on potential surges in buyer demand while carefully considering the impact of rising interest rates.
No Immediate Improvement for Low Inventory
New listings in 2023 started to catch up or surpass 2022 levels in many major markets, but it will be a while before inventory issues completely disappear. Rising immigration coupled with increased international student enrolment is especially straining the affordable housing supply in post-secondary cities. A recent report published by the student association representing post-secondary institutions, cited the absence of reliable housing as one of the key concerns for students at the college.
Active sellers are one ingredient needed to help push supply upwards and that relief may come later in the fall. This continued, historically low supply of homes will keep prices buoyant enough to give some sellers confidence, with new listings likely to peak in October.
Rate Hikes to Impact Condo Supply and Prices
Against the backdrop of rising rents and increased mortgage payments, the popularity of condos is noticeably growing. According to the Greater Vancouver Real Estate Board, condo apartments in the Greater Vancouver Area were the only property type to experience a month-over-month increase in price and at the same time sales increased year-over-year – the largest increase among all property types.
Despite strong demand, high interest rates are putting investors in a difficult situation. Condo investors continue to have a hard time covering carrying costs and they’re not making a profit, which is leading many to sell their investment properties. In turn, we can expect continued inventory growth which will put downward pressure on prices.
Slowdown in Pre-Construction Industry
It’s not only the condo segment that’s struggling with high interest rates; the pre-construction industry is taking a hit as pre-con buyers are seeing values drop, resulting in firesales – that is selling units at significantly lower prices, usually due to financial distress. According to the Canadian Home Builders’ Association, 22% of Canadian homebuilders cancelled projects in the second quarter of 2023. As borrowing rates have continued to rise since then, it’s likely this figure will continue to increase.
Pre-con buyers are walking away from deposits and taking losses to avoid closing. Some are simply handing the units back to the builders and the builders are reselling them at a discount. This may lead to developers even leaving some projects unfinished due to labour shortages, the rising costs of materials and current mortgage rate conditions.
Buyers interested in pre-construction homes should work carefully with a real estate agent who has knowledge about the specific project in order to ensure a good and secure deal.
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