“Leaves may be falling but home sales are not!”
As Canadians prepare for the busy fall real estate market ahead, the decision on whether to buy or sell a home this year will be mired in more than the typical uncertainties that come with a transaction of this magnitude. Housing affordability, interest rates and the mortgage stress test were big newsmakers in 2018 and 2019, and will continue to make headlines for at least another six weeks, with the looming federal election on October 21, and lots of housing issues and policies up for debate between now and then.
Canadian homebuyers seem to be getting used to the new mortgage rules, and there have been some important changes at the federal level that are expected to impact homebuyers and in turn, home sellers:
§ The mortgage stress test qualification bar was recently lowered from 5.34 to 5.19 per cent, increasing purchasing power – albeit only slightly.
§ The First Time Home Buyer Incentive (FTHBI) took effect on September 2, whereby eligible first-timers can get a shared-equity government loan to help with the down payment.
§ The Home Buyers’ Plan (HBP) withdrawal limit was increased from $25,000 to $35,000, toward the purchase of a first home.
§ Rumours of interest rate drops are circulating. The Bank of Canada’s interest rate announcements are a trending topic worth watching every six weeks.
Beyond these factors, fall real estate does experience some seasonal effects. Here are some of our predictions:
- Average Home Price Will Rise
2. Inventory Will Be High
One of the factors affecting the fall market, and while the world economy and Canadian election will have major ramifications on our lives, indirectly, and over the medium term, inventory will play the largest role in what happens to the market this fall. September is going to give us a massive influx of listings, and those buyers who slow-play the market and wait until October will have a lot less to choose from. Supply still lags behind demand, as it has in virtually all market segments for the better part of two decades. But our gut tells me we’ll see higher inventory levels this fall, and we still think prices will increase.
- More Sales, Tighter Market
In the context of a real estate market, it’s about the shrinking gap between sales and listings, thus that place in which you find yourself in the market becomes tighter. Sales actually increased in October, over September over the past eight years.
How many of those eight years?
All of them. You will also undoubtedly notice that the“Sales-to-New-Listings” ratio increased, on average, from 48.1% to 59.5%, September to October. And although sales decline from October to November in 7/8 years above, it seems as though new listings declines at a higher rate. And thus the SNLR ratio increases to 68.2%.
4. Condo Prices Will Keep Rising
The run-up in condo prices that we’ve seen in the last decade is most pronounced in the last three to four years. And this is while the market for freeholds has been spotty by comparison. Appreciation on Toronto condos has tripled that of detached in the last 2 1/2 years, and is 83% higher than the rate of return on the GTA overall.
So despite all of this, why are we saying that condos are going to continue to rise?
Because it’s about relative prices now, not absolute. Buyers care less and less about the relative price of real estate downtown, so long as they can afford the absolute price. And developers are all too happy to play along, with units shrinking in size with every successive project. Condos are going up in price this fall, you heard it here first.
That’s it for today, Happy fall, folks!