Not to detract from those suffering real health issues, but the real estate market seems to be ailing from Long-Covid!
After a brief slump at the beginning of the Pandemic, the real estate market in the GTA and across Ontario was raging since July 2020 until the end of 2022. The volume of transactions was consistently high, and the prices rose in excess of longer market trends throughout this period. This was due to a longer trend of low borrowing costs that continued through the Pandemic until June 2022. Coupled with low interest rates, many buyers found they were able to quickly save sufficient downpayment because they weren’t spending money on anything else such as travel or eating out! This was particularly true for first-time homebuyers but also applied to those looking to upgrade or add properties. We dealt with many buyers shifting their sights from the GTA to farther afield finding less expensive properties out of town; this reflected the professional WFH trend which exploded as a result of the Pandemic.
Over the past decade, buyers have gotten accustomed to low interest rates in the lending market. However, many of us recall the era in the late 80’s of double-digit rates, sometimes as high as credit card rates are now! For those of us in that generation, even the elevated rates today seem relatively manageable. However, it is definitely the case that the high rates today are causing many buyers more difficulty qualifying for conventional residential mortgages; the high rates wreak havoc on the FCAC stress test for mortgage qualification. We see this trend now in our real estate practice. Since the last quarter of 2022, many transactions in which we would have expected to see standard institutional mortgage lending are being completed instead with alternative and private lending arranged through a broker. Even bank mortgages have enumerable funding qualifications we would not have seen a year ago.
At the same time, sellers have become accustomed in the last couple of years to an expectation for greater gains in value than they are able to achieve today. There is a slump in volume now because sellers are reluctant to list at today’s prices; and buyers are either reluctant or unable to take on the extra mortgage costs, or unable to qualify past the current stress test, even if they are prepared to pay the additional cost of borrowing.
I have been disinclined to make predictions on the real estate market because, since early 2020, I have been wrong just as often as I’ve been right. I have found the real estate market difficult to predict since the outset of the Pandemic. That said, my current forecast is that the market will pick up again as this year progresses. I think this will be the case because buyers will realize five things: 1. Prices are lower than they’ve been in a long time; 2. Interest rates are likely to plateau and may decline over the coming year; 3. Prices are low right now; 4. High borrowing costs may be a short-term pain for a long-term gain; and, 5. Did I mention it? Prices are low! At the same time, some sellers, who have delayed their plans waiting for prices to recover, will eventually need to get on with their lives and list their properties. This may nudge the inventory up just enough so that the confluence of buyer interest and an increase in volume will create a rising price trend. While it may take a while for a buyer to find the ‘ideal’ property right now, it is a buyer’s market. But it may not be later this year if volumes and prices trend back up.
The bottom line: If you can afford it now, then now is a good time to buy.