We have been in it for awhile now, almost 6 months from the peak. So where are we, and where is the market heading. Let’s take a step back and look at the bigger picture as well. What is influencing and will continue to influence the market for the remainder of 2022.
First, let’s look at the interest rates. The Bank of Canada (BoC) raised the interest rates by .25% in March, 0.5% in April, 0.5% in June, a full 1% in July, and now an additional .75% on September 7th. All of these increases during a time when people are struggling financially made it difficult for many. OK, I get it. They are trying to combat runaway inflation and trying to get ahead of it. The prediction is October and December may bring further increase, or they may “post-pone” them depending on the economy and the rate of inflation at that time.
Do you remember that during the recent election a big concern was the affordability of housing? Well, it got worse for home buyers. Many more people can simply not afford a house right now. They could not afford it when the interest rate was 0.5% they cannot afford it when the interest rate is 2.5%.
This in turn has caused many of them to decide to rent instead. The rental market is very active and because of this, rents are increasing. Having to pay more for rent, people hoping to buy a house are having a harder time saving. This is driving their affordability down.
At this same time immigration is increasing. Canada is now seeking over 430,000 immigrants per year and will target 450,000 by 2024. First quarter of 2022 saw the highest level of population growth since 1946 according to this article (https://www.cicnews.com/2022/07/canadas-population-growth-at-highest-level-in-more-than-30-years-0726651.html). They are going to want a place to live as well. At first they will most likely be looking to rent in an already hot rental market. Then eventually many will want to buy.
Affordability is decreasing but demand is increasing. Anybody else see a problem with this?
That is the situation we are in, looking forward to the end of 2022 and into 2023.
What about house prices? Will they continue to come down? Some people are predicting a further 25% decrease in prices. I do not see any indication of further decreases by that significant of an amount. If you look at the average price in Hamilton and Burlington, it seems to be hovering where it currently is. Sure they fluctuate weekly but the general trend seems to be leveling off. If you look at the graph since early to mid July you can see the general flattening of the curve (View graph here). Prices may come down a little further but I really think we are nearing the bottom. We may possibly see a single digit decline in prices in certain markets depending on when you buy. This really is no different than a regular market and common fluctuations. To clarify, prices may come down a little but I do not believe by 25%. I believe perhaps an addition 5% to 10% in certain markets. Perhaps even less in others.
So what could affect house prices looking forward? If we go into a recession fewer people will be looking to buy. So are we in a recession? Not yet, but let’s hope that the BoC does not continue to raise the interest rate too quickly and slow an economy that is already performing slower than anticipated. To quote David Macdonald, a senior economist for the Canadian Centre for Policy Alternatives: “It really is up to the BoC.” (https://www.thestar.com/business/2022/08/31/canadas-economy-is-already-starting-to-shrink-and-that-could-mean-a-recession-is-looming-economists-say.html)
There are many rumors out there right now. People and experts predicting everything from a total market collapse to the market already rebounding. From what I have seen and read, and with a little optimism mixed in, the BoC may increase rates again in October and December at a lower rate than recently seen. There is talk that 2023 may see reductions in these rates as well, but there are far too many stokes in the fire to predict accurately that far out.
Bottom line is, if you are thinking of buying or selling real estate, now is a good time. If you try to predict the bottom of the market you are going to miss it. If you would like to discuss your options, please send me an email or give me a call. Let’s look at the details so you can make an educated decision.
