Ottawa Real Estate Monthly - May 2024
Characterizing the market to date in 2024, sales remain low historically but are increasing compared to last year's low point. Inventory - the number of properties on the market - is rising sharply after a few years of being critically low.
Some of the statistical indicators are in balanced market territory - a place the market rarely stays for long.
Snapshot
Observations - Sales Growth Slowly Slowing
Try saying that 10 times quickly without slurring.
While freehold sales are up by double digit percentages compared to 2023, the growth has been less each month this year so far. The same is true for average sale prices of freehold and condominium homes. Condominium sales growth on the other hand, has been increasing,
What do I mean by sales and price growth over the same month last year, compared to growth last month? For example, freehold prices in March were up 4.6% over March 2023, and freehold prices in April were up 1.8% over April 2023. Price growth therefore slowed from 4.6% to 1.8%.
To fill out the picture:
Fleeting Times: Is The Market Balanced?
We can rarely say we are in a balanced market in Ottawa. Trajectory, either upward or downward, tends to build momentum and push the market to favour either sellers or buyers. For most of the past 15 years, conditions have favoured sellers statistically.
To test this statistical characterization experientially, think about your sense of how long it should typically take to sell a home in Ottawa. If you needed to sell your home, how long would you expect the process to take?
How Does Balance Feel?
My guess is that your instinctive response was something like "two or three months". If I asked you how long it would take to sell your friend's house - the one who has put tons of money and time into it, maintaining it meticulously, and decorating it to the nines. The one you always compliment. You'd probably say that house would sell in days or at most a couple of weeks. And hey, maybe that's your house too.
We've been spoiled, in this sense, by an Ottawa market that is incredibly active and liquid. The City has been growing steadily - rapidly even, by North American standards - and is very prosperous. Government, high tech and a growing variety of entrepreneurial sectors reward us with above average household incomes, while a fairly conservative (small "c") financial culture has mitigated price escalation compared to Canada's biggest cities.
For decades in many cities and towns in Canada, six months to sell a home was not unusual.
A seller's market feels "normal" here.
Statistically, the sales to new listings ratio is said to indicate whether market conditions favour buyers or sellers. Values above 0.6 indicate a seller's market; values below 0.4 indicate a buyer's market. The area between 0.4 and 0.6 belongs to balance. Reviewing market graphs over the past 15 years, this ratio usually only dips below 0.6 seasonally (that is, briefly in Winter).
But times have changed: it fell below 0.6 in June of 2022 and aside from December when there is always a big drop in new listings, has remained in balanced territory.
Not Fully Balanced
There are other statistics that indicate the character of the market. A sales to inventory ratio above 0.4 is generally thought to indicate a seller's market, while this ratio below 0.2 indicates a buyer's market.
Inventory has been climbing since the Bank of Canada started raising interest rates. New listings are climbing much faster than sales, as evidenced by the sales to new listings ratio discussed above.
The graph shows at this point, however, that inventory (homes for sale) hasn't accumulated enough to drive the sales to inventory ratio into balanced territory. If sellers continue to enter the market more quickly than buyers this year, which would statistically be typical over the second half of the year, this ratio will move toward balance as well.
What we're all waiting to see is whether a small drop in rates by the Bank of Canada, which may or may not happen in June, activates buyers enough to flip market trajectory.
领英推荐
By consensus, an absorption rate below 15% indicates a buyer's market and this rate above 20% suggests that sellers have the advantage. Consensus doesn't give much range for balance, but perhaps this reflects what I noted earlier: markets tend to tip toward favouring one party or the other, experientially, and balanced behaviour is fleeting.
The absorption rate in Ottawa at the end of April was 32%, based on average monthly sales over the past 12 months. I use a 12-month average to smooth out the statistics and provide a more general sense of market momentum. A shorter window would perhaps more accurately reflect the ups and downs of market behaviour, but can also be less accurate as it is subject to temporary bursts that may have nothing to do with market sentiment and more to do with the happenstance of which properties hit the market, which buyers are active, and a smaller sample size.
Using only one month of sales, the absorption rate was 44.7% in April.
Capital Gains Implications for Small Investors
I'm not an accountant or an estate planner, and certainly am not here to give tax advice, but I do share ideas that come to mind pertaining to real estate in response to government or industry policy changes and trends. You can then explore the idea if you think it might apply to your situation.
Many of my clients have acquired a small portfolio of investment properties that form a significant portion of their net worth and potentially create or build upon generational wealth for their families.
If you own multiple properties, it may be wise to revisit your estate plan in light of the proposed increase in the capital gains inclusion rate from 50% to 67% on the realization of capital gains over $250,000 for individuals.
One strategy employed by many small real estate investors in passing their portfolio to their children is to instruct their executor to sell one property and use the proceeds to pay the capital gains taxes owing on the remaining properties (and on the one being sold). Planning for this occurrence in advance, and choosing the number of properties to acquire with this in mind, does not avoid any taxes but manages the process seamlessly and leaves a predetermined number of properties intact (from an equity standpoint) upon transfer to one's heirs.
The change in the inclusion rate messes up this strategy. It may be better for some investors to investigate strategies to transfer properties prior to death to avoid realizing capital gains on multiple properties in the same year.
This logic may apply to any case of owning multiple properties (cottage or ski resort condo, co-signing with more than a nominal equity share, etc.). If you thought you didn't need the complexity of a pre-death transfer of real estate holdings, including an assessment of the inherent control risks, you may now want to re-assess with your tax accountant, estate planner or lawyer and make a conscious decision about whether you need to change your strategy.
CREA SnapShot
The Canadian Real Estate Association (CREA) provides a monthly snapshot based on all MLS sales. This data includes sales of properties in the Ottawa area that were not listed on the Ottawa Real Estate Board's (OREB) MLS system, but rather on another Board's MLS. Yes, some Brokerages representing sellers of properties in Ottawa or Eastern Ontario list their clients' properties only, for example, on the Toronto Regional Real Estate Board's MLS. These properties appear on Realtor.ca but elude client portals set up on the OREB MLS. You can judge for yourself as a seller whether this service would be in your best interest.
The above explains any minor discrepancies between the CREA data and the data that I share and analyse that comes strictly from the OREB MLS. (From time to time I write about and analyse data from Teranet, Statistics Canada, CMHC, CREA, and other sources, but I'm referring to my monthly statistics and annual neighbourhood rankings when I say my data comes exclusively from the OREB MLS source.)
Thank You
Thank you very much for reading my newsletter.
Is someone you care about thinking of moving or investing?
I would love to help. If you feel comfortable introducing us, please do.
In Case You Missed It
In case you missed it, or perhaps you subscribed within the month, here's a link to the online version of last month's edition.
Bruce Brown, Real Estate Broker, Certified Executor Advisor
RE/MAX Hallmark Realty Group, Brokerage