what's happening to the real estate market

So what’s happening to the Real Estate market? The Real Estate market this Spring would seem to be a study in contradiction. On one hand, listing inventory remains low and competition for desirable properties can be fierce. On the other, while there still seems to be some urgency from buyers looking to purchase a home, that too, is calming down somewhat. High sale prices combined with predicted interest rate increases have made some question whether this is the right time to buy.

Even the experts don’t seem to agree on where the market is headed. According to WOWA.ca, RBC is predicting a 3% increase in home sale prices and a 20% increase in the number of sales in Ontario for 2022. TD, though, predicts that prices will drop slightly, 1.3% and that the number of sales will fall by 16.7% over the same period.

Though slower than 2021, there is agreement among the experts that the housing market will stay very active in the first half of 2022. The expectation is that sales will be slower in the second half of the year than in the first.

While not expected to drop any time soon, sale prices aren’t expected to rise at the dramatic rate of the past two years and may in fact hold relatively steady. So what’s happening to the real estate market? Several key, interconnected factors are influencing the market.

Supply and Demand - what's happening to the real estate market1. Supply and Demand
In his January 26, 2022 article, Robert Hogue of RBC estimated that the Canadian housing market was short between 180,000 and 250,000 listings at the end of 2021, and that with strong demand, it would take three times the number of active listings to balance the market. While some of that demand is expected to be met by new construction, the Government of Canada, in their December Fiscal Update, said that it could take “years” for the real estate market to correct itself.
Part of the demand for housing is coming from millennials, who are leaving home and looking to get into the market. A report from the Centre for Urban Research and Land Development indicated that in the Golden Horseshoe alone, more than 700,000 of them “were still living at home and likely to be aging into the market.”
Foreign buyers and large international real estate trusts buying for speculation are another. Prime Minister Trudeau has proposed banning them temporarily, to help reduce demand and cool price increases.

2. Interest Rates
Record low interest rates and a steady supply of financial support from the federal government are said to have helped cause the buying frenzy that started mid-2020. While allowing buyers to get into the housing market, these low rates have, in many cases, also left them very vulnerable to increases.
In early March, the Bank of Canada raised interest rates for the first time since 2018. Ahead of the increase, lenders saw a rush of buyers looking to secure mortgage commitments at the lower rates. Some mortgage agents have reported submitting nearly every pre-approval for a rate hold, usually good for 90-120 days for most lenders.
Further increases are predicted to happen gradually through the year to help get inflation under control. As lenders adjust their variable rates, some buyers could see an increase of hundreds of dollars per month in their mortgage payments.

affordable housing - what's happening to the real estate market3. Affordability
For an average buyer, house prices will be more than 50% over the affordable level by the end of 2022 in major Ontario cities, according to Jordan Press, CBC Business. In a March 22, 2022 article in The Toronto Star, Andrea Metrick, Senior Director of Home Equity Financing at RBC, said that affordability is a key stressor. Buyers are “asking themselves a couple of key questions around affordability: Firstly, what will I be able to afford? Secondly, when will I be able to afford it? And third, where will I be able to afford it?”
‘Fear of missing out’ on the hot real estate market may have run its course. More people are coming to the conclusion that they just can’t afford to buy right now and are holding off. They’re beginning to see that ‘up’ isn’t the only direction for prices to go, and are willing to wait for them to level out or go down.
As if rising house prices and interest rate increases aren’t enough to make buyers hesitate, it may soon be tougher to even qualify for a mortgage. To quote RBC’s Robert Hogue, “The broad increase in rates – we expect both variable and fixed rates to rise materially – is likely to pressure up the mortgage qualifying rate at some point in the second half of this year (or possibly sooner). We think that would push some buyers to the sidelines at least temporarily.

Financial Instability - what's happening to the real estate market4. Financial Instability
In the March 21, 2022 issue of REM, Kunal Sawhney wrote that there were 200,000 jobs lost in Canada in January, bringing the unemployment rate to 6.5%. This was the first time it had risen since April of 2021, calling into question the strength of the economy’s revival. A story published in the Toronto Star the next day quoted a survey of more than 2700 people by RBC. Its results showed that 48% of those surveyed were worried that rising inflation would impact their ability to buy a home, 40% felt financially overwhelmed, and 42% were concerned that their financial situation would deteriorate over the next year. Buyers are also fearful that rising interest rates will offset any increases they may see in their household income, making it harder to buy.
In addition, the conflict in the Ukraine and the resulting sanctions against Russia are causing prices on nearly everything to go up. The Bank of Canada’s most recent policy announcement said, in part, “The unprovoked invasion of Ukraine by Russia is a major new source of uncertainty. Prices for oil and other commodities have risen sharply. This will add to inflation around the world, and negative impacts on confidence and new supply disruptions could weigh on global growth. Financial volatility has increased. The situation remains fluid and we are following events closely.”
So what’s happening to the real estate market? These factors have contributed to level of uncertainty in this Spring’s market; one that’s become frustratingly difficult to navigate for buyers and sellers alike. The frenzied behaviour of the past 2 years is behind us, and buyer fatigue is settling in. The result for sellers is that many listings are seeing fewer showings, fewer Offers, and ‘Offer Nights’ come and go with none appearing. Expert predictions aside, it will be interesting to see how 2022 unfolds.