Here We Go…Again

I’m going to make a bold statement…The real estate market has caught fire again!

For the past 8 to 12 months the real estate market has been in a dormant state. Like someone turning off a light switch the moment the Bank of Canada (BoC) started to raise interest rates, the real estate market has been dormant. Buyers that were competing against dozens of other offers in 2021 and the first quarter of 2022 to buy a house, all of a sudden were on the sidelines.

The cost of borrowing money in the form of a mortgage felt like it doubled overnight. Why would anyone buy a house with no end in sight on rising interest rates? Well, again, like a light switch, the moment the BoC said they would halt rate hikes for the remainder of 2023, there was a spike in the demand for real estate.

“There has been nothing ‘typical’ about Canada’s housing market since the start of the COVID-19 pandemic. Lockdowns brought the housing market to a grinding halt in early 2020 before the work-from-home revolution catapulted it into a two-year, all-season frenzy of record sales volumes and aggressive price growth,” said Phil Soper, president and CEO of Royal LePage. “As markets do, this market overshot, and the inevitable correction was triggered when the Bank of Canada began to rapidly raise interest rates. The downturn came swiftly, and the real estate industry remained depressed for 12 months. We have turned the corner and the housing economy is growing again; none too soon for many buyers, who have been waiting patiently for prices to bottom out.”

More good news is on the horizon, as this is the first time we have seen inflation reports that begin with a “4,” since 2021. And with lower inflation comes lower interest rates. Think of interest rates as either the gas pedal to price appreciation or the brake pedal, which lowers demand and thus reduces value.

Unless we see something drastic happen in Canada's economy like a surge in crude oil prices or another surprise event, the Bank of Canada is predicting 3% inflation by this summer. Though still considered high when compared to an inflation target in the 2-2.5% range, this is good news when coming off a high of 8%.

A recent Royal LePage survey found that nearly one quarter of Canadians (24%) were in the market for a new home over the last year, and 63% of them said they postponed their plans due to rising interest rates. Of those who put their plans on hold, 26% said they plan to resume their search this spring, and another 36% said they would return to the market in the near future, once the Bank of Canada holds rates for several consecutive months.

Royal LePage is forecasting that the aggregate price of a home in Canada will increase 4.5% in the fourth quarter of 2023, compared to the same quarter last year. The aggregate price of a home in the Greater Toronto Area decreased 11.8% year-over-year to $1,119,900 in the first quarter of 2023. On a quarterly basis, however, the aggregate price of a home in the GTA increased 4.8%.

While sales are way down in the Greater Toronto Area compared to the record highs reported in the first quarter of 2022, on a month-to-month basis, sales were up 54% between January and February, and 44% between February and March; and new listings were up 9% from January to February, and 34% February to March.

Royal LePage is forecasting that the aggregate price of a home in the Greater Toronto Area will increase 7.5% in the fourth quarter of 2023, compared to the same quarter last year. The previous forecast has been revised to reflect current market conditions.

If you have found this information to be as clear as mud, please reach out. We’re here to help. And please remember, the real estate market is big. The neighbourhood and street you live on is small. There are many factors that go into the price of a home and we can help with that.

Source: Royal LePage and Connolly Capital Mortgage Solutions