Higher Rates and Short Supply: The State of Real Estate in 2022
The housing market hit a boiling point last year. But now that Canadians are feeling the pinch of rising interest rates and record inflation, the market appears to finally be simmering down.
However, homebuyers hoping for a major downturn in prices may be left disappointed. Although home values in some segments are beginning to sag under the weight of higher borrowing costs, a persistent housing shortage is expected to keep prices high.
Read on for a closer look at some of the top factors impacting Canada's real estate market and how they could affect you.
RISING MORTGAGE RATES ARE COOLING AN OVERHEATED MARKET
Now that the central bank has officially begun raising interest rates, the housing market is responding, with the pace of home sales cooling in March and April. The Canada Mortgage and Housing Corporation (CMHC) predicts that the housing market will continue to moderate in the coming year.
The feds plan to keep raising interest rates as necessary to fight inflation, which means target rates could rise by another 1 to 2% or more over the next year. That, in turn, will cause both fixed and variable mortgage rates to rise.
As Senior Deputy Governor Carolyn Rogers noted in May: "We need higher rates to moderate demand, including demand in the housing market. Housing price growth is unsustainably strong in Canada.”
What does it mean for you? Buyers should act fast to secure a good mortgage rate. For sellers, speed is also of the essence. The pool of potential buyers may shrink as mortgages become more expensive. And if you are up for a renewal, you should also act quickly or risk paying a higher rate. Contact us to discuss your options.
DEMAND AND PRICES ARE STARTING TO SOFTEN IN SOME SEGMENTS
Nationally, home prices soared a record 26.6% last year. But now that the Bank of Canada has put rock-bottom rates in the rear view window, sales have begun to slow. According to the Canadian Real Estate Association (CREA), in April, home sales fell by 12.6% over the previous month, and the Aggregate Composite MLS® Home Price Index dipped for the first time since 2020.”
But even though some prospective buyers may be scared off from the market, many experts say a major downturn in prices is unlikely. That's in part due to the fact that there still aren't enough homes available to meet demand, says CREA CEO Michael Bourque. “The supply of new homes is not even close to keeping up with demographic changes and population growth.”
What does it mean for you? If you’ve been waiting to buy a home, now may be the perfect time to jump in the market. There are deals to be found if you know where to look. But don’t wait too long, or higher mortgage rates will erode any cost savings. We can help you find the best opportunities in today’s market.
INVENTORY REMAINS TIGHT
New homes are still being built at a faster clip today than in the past, but at a slower pace than we saw in 2021, noted CMHC Chief Economist Bob Dugan. Homebuilders are facing a wide range of challenges, including persistent inflation, rising rates, and ongoing labour shortages.
Increased federal investment could help counteract at least some of those challenges. The federal government recently announced plans to help double the pace of housing construction over the next decade by funding significantly more new and affordable housing. It also announced additional relief measures, including a temporary ban on foreign investment, doubling first-time buyers' tax credit, and halting blind bidding wars.
What does it mean for you? Even a modest bump in inventory can help take pressure off of buyers. If you’ve had trouble finding a home in the past, give us a call to discuss what we’re currently seeing in your target neighbourhood and price range. If you’re a homeowner, it’s still a great time to sell and cash out those big equity gains. Contact us to find out how much your home is worth in today’s market.
WE’RE HERE TO GUIDE YOU
While national real estate trends can provide a “big picture” outlook, real estate is local. And as local market experts, we can guide you through the ins and outs of our market and the issues that are driving home values in your particular neighbourhood. Contact us to schedule a free consultation. We’ll help you make the most of this unique real estate landscape.