Ontario’s real estate market enters adjustment phase
Homeowners in Ontario’s real estate market have made incredible gains over the past 20 months. After a modest slowdown in the first two months of the global health crisis, many aspects of Ontario’s housing sector – particularly single and semi-detached homes – have soared to record highs, from sales activity to price growth. But but has a adjustment phase begin ?
Ontario’s housing industry is bracing for a slowdown amid an environment of tight inventories, sky-high prices and changes to mortgage stress tests. How far it cools down remains to be seen, but the consensus is that homeowners who want to hammer a “for sale” sign on the lawns of their residential properties might want to lock in their profits now.
The latest trend in the province’s hot real estate sector has been that sellers have turned down sweet offers, anticipating even better deals for their two-bedroom, two-bathroom bungalow just outside downtown Toronto. Realtors, who have witnessed too many of these cases, now suggest take the money and run as the housing market moves to a new normal.
Ontario’s real estate market enters adjustment phase
The National post recently published an article titled “The Great Real Estate Cooling Has Arrived”. It included examples of homeowners regretting their decision to turn down bids in the hope of more lucrative auctions.
For example, a Hamilton salesperson received an offer of $ 100,000 above the asking price. Instead of accepting the money, they rejected the six-figure addition. Rob Golfi of RE / MAX Escarpment Golfi Realty Inc. suggests that this is proof of “how inflated expectations in still hot but cold Canadian markets like the GTA cause home sellers to miss out on otherwise profitable trades.“At the time of writing, the house was still unsold.
“Numerous [sellers] realize weeks later that they botched up an attractive offer and regret that they became overconfident and dissatisfied with the offers they turned down, ”he noted. “It is difficult for sellers to understand that we are now in an adjustment phase. “
Does this mean that the Ontario real estate market, as well as the Canadian housing sector as a whole, will experience a substantial correction or collapse? Not enough. Nationally, the average home sells for over $ 679,000. In the country’s most populous province, the average price is north of $ 800,000.
But while sky-high prices could be the new normal, some real estate experts believe the monumental price growth has peaked, meaning the frenzy has subsided. Shaun Cathcart, senior economist at the Canadian Real Estate Association (CREA), says last summer was the “slow return to normal” season.
Going forward, there are many factors at play that could prevent a new wave of selling activity and double-digit valuation spikes.
Why is the Ontario real estate market adjusting anyway?
Whether in Toronto or northern Ontario, can the typical household in the province afford to buy a residential property? In Toronto – the financial capital of Canada, for example – it would take many years to save for a down payment, with some estimates calling for up to 25 years. This is a critical barrier to entry for home buyers.
The supply of housing continues to plummet, leaving a limited number of options for those who want to enter the real estate market. With inventory this low, it becomes incredibly competitive for the large pool of buyers. However, whether it is frustration with the intense bidding wars or the shock of the sticker for a starting house, many people have been left on the sidelines and expect relief. Indeed, the commercial activity that was omnipresent in the aftermath of the COVID-19 health crisis has declined. Although prices appear to have stagnated, homebuyers are waiting for more respite.
Last summer, the federal government raised the threshold for the mortgage stress test. The new stress test rate was raised to 5.25 percent, reducing a family’s affordability to $ 618,000. This is an important rule, because the stress test means that you must qualify for your mortgage at the minimum qualifying rate, forcing buyers to cut their budget or save a larger down payment.
Next year, the Bank of Canada (BoC) could pull the trigger for an interest rate hike, raising the cost of borrowing, affecting everything from mortgages to auto loans. This would put more strain on the finances of households who wish to fulfill the dream of home ownership.
It is not known whether there will be enough supply online to meet demand and lower house prices across the country. According to the Canada Mortgage and Housing Corporation (CMHC), housing starts declined in August 2021 compared to the same period a year ago, totaling 8,959 compared to 10,118. However, since the start of the Year-on-year housing starts climbed to nearly 61,000 from 51,284 in the first eight months of 2020.
Canadian real estate is at a critical juncture
Most Canadians agree that there is a nationwide housing affordability crisis. Despite the myriad of proposals presented during the federal election campaign, industry leaders agree that the best solution is more supply, which could be achieved by streamlining the application process, reducing red tape and further encouraging development. Until this is accomplished, it will continue to be difficult for many young buyers to follow in the footsteps of their generational predecessors and realize the Canadian dream.