Sellers’ nightmare and Buyers’ dream? May be…

I was reading an article by Molley Fool on the Globe and Mail about the current status of the market, and it got me thinking if this could be yet another golden opportunity and an extraordinary period for some to enter the real estate market and take advantage of the current market situation:

A-???? Average House Price Growth vs. Median Income Growth:

According to Stat Canada House prices in Ontario have been growing much faster than household incomes.?For example, between 2007 and 2017, house prices increased by 69.1%, while median household income only rose by 27.6% This indicates a huge gap in the affordability of available housing for residents that did not currently own a home. In Ontario, majority of people who did not own a home were single and worked in retail sector. Wages in the retail trade sector were the lowest among all industries in Canada, where the median hourly rate in 2017 was $16.00, compared to $33.33 in the public administration sector and $22.07 in the manufacturing sector (Statistics Canada, 2018).

B-???? Property price to income ratio:

The average home price in Ontario is significantly higher than the average household income.?As of September 2021, the average home price was around $887,290, which is about 16 times the average household income of $55,500 Inclusion of average household income is a way to show how affordability stacks up in the province. The grater the ratio of house prices against the household income, the less affordable the housing market is. With high demand in larger metropolitan areas, it is imperative that their prices be higher than the outskirts of the major cities therefore, pushing the new home buyers to populate the outer cities.

C-??? Affordability Issues:

?This disparity has led to affordability issues, where many households find it challenging to purchase homes.?The traditional financial advice suggests that a home should cost no more than four times the household income, but in many parts of Ontario, this ratio is much higher. I personally have met clients that could not get qualified for a property in the GTA with even five times of their household income. This forced them to look for properties well outside of the two hours drive from The greater Toronto area. This is due to regional differences within Ontario.?For instance, Toronto and its surrounding areas tend to have higher house price-to-income ratios compared to other parts of the province

?Now if we take a look at current market stats we notice that there are much more properties out there available for sale for much longer time than what we are used to with less people to be able to afford them which is a great news for buyers.

Between August 2023 and August 2024, Ontario saw a significant number of properties available for sale.?As of July 2024, there were?62,940 active residential listings, marking the highest level for the month of July in over five years1.?Additionally, there were?37,198 new residential listings?in July 2024 alone1.

With less competition for homes available, and properties remaining in the market for longer, the higher are the chances of sellers being forced to accept the offers with sales conditions. During the periods of high competition, the buyers were more likely to skip conditions such as inspection or mortgage approval to stay in the match to purchase high demand homes. As the market becomes flooded with inventory, the sellers may have o choice but to accept said contingencies to increase their chance of making the sale.

With prices still being out of reach for millions of people, if the high inventory lingers for some time longer, we may see price adjustments in many pockets in order to reduce the available inventory.

On the other hand, as interest rates begin to cool off, some sellers who were in the market due to unaffordable mortgage payments, may reevaluate their decision to sell and take the houses off the market and that might help reducing the inventory although I personally think that may be a very small figure compared to what we have available now.

In summary, I strongly believe that in the fall, we should witness a surge in market activities both due to lower competition and market adjustments and also due to lower interest rates that will help with the affordability of residents that were waiting to be able to qualify for mortgage.

Thank you for reading... Your comments and feedback helps me improve both as a mortgage broker and a student. Please do share this if you find it useful for your network.

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