Let me start by humbly stating that I did not predict the market would soften this much, but it has. I also predicted that it was not going to last this long before rebounding, but it did in some markets. Burlington is starting to see prices slowly go back up while Hamilton continues to go down. The question is why. Why has the average price dropped by so much? What happened to the market?
First, let’s look all the way back to February when the market was still strong. The limited number of properties being listed for sale caused buyers to compete. Properties were selling well over the asking price as they had been for months beforehand. Buyers were getting frustrated as many of them were putting in offer after offer and not winning. They watched as prices climbed higher and higher. It got to the point that they were tired and disheartened over their dream of home ownership. The market was experiencing buyer fatigue.
Sold prices were out of control. In many cases, the properties were listed at market value but still sold well over asking. In my opinion, this was most often due to buyers being desperate or under duress. Perhaps the buyer had already sold their home and the closing day was rapidly approaching. If they don’t buy soon, where were they going to move to? Or maybe the buyer had already given notice (or was given notice) at their current rental and had to move out within 60 days. Whatever the reason, the buyer was desperate to buy and willing to pay a premium to do so. The average sold price could not continue climbing at the same rate as we saw throughout the beginning of 2022 and all of 2021. It was not sustainable.
The buyer fatigue and out-of-control prices where the gunpowder and the interest rate hikes were the spark. On April 13 the Bank of Canada announced a historic increase of 0.5%. Then in June, they announced another historic increase of another 0.5%. These back-to-back increases had an effect but the market seemed ready to come back from it. What really ignited the fire was when the US announced an increase of 0.75% and people were told that Canada was likely to follow suit in July. When people heard there was going to be another increase even more than what had happened, they became worried. Now many buyers are simply waiting to see what happens in July.
Unfortunately, these interest rate hikes are not only affecting buyers. There was a recent poll that found that if interest rates continued to increase that 1 in 4 Canadian homeowners were going to be forced to sell. Read more about the poll HERE You can already see the impact as the number of properties on the market is going up rapidly. In Hamilton for example, at the beginning of 2022 it was at a low point with only 11,730 properties for sale in January and 23.220 in February. June saw 28,202 properties for sale and July has 27,223 as I write this on July 4.
Bank of Canada will announce on July 13th what will most likely be another increase. The question is how much. Will they follow suit with the US and increase it by 0.75%? It will be interesting to see what happens immediately following this announcement and how the remainder of the summer will play out. My guess is there are a significant amount of buyers who are wondering the same thing. Probably a few sellers too…
