What’s up with the housing market: Are buyers on strike?

What’s up with the housing market: Are buyers on strike?

If you blinked you would have missed it. The housing market was on fire in February with houses on the mls (multiple listing service) seeing record price increases.

Home buyers were lined up down the street to get a showing. Open houses were bursting at the seams. It was not uncommon to receive 30 offers on a house and have it sell for thousands of dollars above the asking price.

There simply was not enough housing supply to keep up with the buyer demand. This led to an unprecedented market. It was a terrible situation for buyers to try and buy a home and absolute calamity for most home sellers, unless you moved to a hotel—which some sellers did. A crazy environment for buyers and sellers.

Today it’s the polar opposite. Selling your home is no longer quick. Some home sellers are begging for an offer. Others struggle to even get showings.

Home equity is dwindling compared to purchase prices of February. It is literally the opposite of February’s market. Certain sellers are panicking because they bought a house banking on the proceeds from their sale.

So, what’s in store for the market? I’ll liken it to a Saturday afternoon cruise down Highway 401. Your speedometer says 160 km/h. You’re driving a Lamborghini and there are no speed traps in sight.

Then, off in the distance, there are red lights. Traffic is building and, all of a sudden, you’re forced to reduce your speed because you’ve come upon a traffic jam.

The traffic jam represents buyer fatigue, astronomical seller price expectations and rising interest rates. Like a traffic jam, these factors cause the market to slow down.

The Central Bank of Canada made it clear they would raise interest rates in the short term affecting monthly mortgage payments (monthly payments) on fixed rate mortgages and variable rate mortgage payments. A recent update by Connolly Capital Mortgage Solutions, a leading Canadian mortgage brokerage, shows Canada’s 5-year government bond has been volatile as of late, but has consistently remained under 3% for the last three months.

Investors and banks are pricing for inflation risk, so they are continuing to raise fixed rates. Conventional fixed rates are well over 4.50% now and alternative lending deals are over 5.00%.

Why does this all matter? It matters because it affects interest rates and iterate rates affect a buyer’s ability to borrow money. The higher the interest rate the higher the cost to borrow. Other factors like the consumer price index (CPI) and inflation (rising costs of goods and services) will affect a buyer’s ability to get a mortgage loan.

The consensus appears to indicate another 0.50% hike to the Bank of Canada’s Prime Lending Rate. This would bring the Prime to 3.70%. Ultimately, the Bank of Canada is slowing growth by raising rates, which is affecting purchase prices amongst housing and other goods and services. Home buyers will continue to shop banks and alternative lenders for the lowest rate.

Most home buyers will ultimately have to decide whether to go with a fixed rate mortgage or a variable rate mortgage. It’s recommended to speak to a mortgage broker (or mortgage brokerage) or your financial institution and build a plan based on potential annual percentage rate (APR) increases or decreases. They may have to increase the amortization period to bring down monthly payments.

They can help determine monthly mortgage payments based on a home’s equity. This can help save you thousands of dollars just by strategizing. It’s also beneficial to know what your regular payments will be.

So, what’s in store for the remainder of the year? Where did all the pent-up demand from buyers go that was so abundant in the first quarter? Don’t be surprised if the market does normalize.

Buyers will be used to higher interest rates. Sellers’ expectations will have adjusted and people need homes for growing families, downsizing, readjusting capital, investment and for many other reasons. Don’t be surprised if the market picks up steam towards the end of the year—albeit, perhaps, not at the rate we saw in February.

Immigration continues to be a big factor when it comes to forecasting the housing market. With north of 400,000 immigrants coming to the country a year, this creates demand. And demand affects housing prices. The real estate market is driven by supply and demand. Mortgage rates will affect rising house prices in the interim with mortgage payments increasing. Real estate agents know all to well that dips in the market do happen. Inflation prices across the board are being curbed by the bank of Canada to slow prices. Especially for Toronto house prices, one could argue we need a break pedal.

Mississauga real estate prices have dropped on a detached home for the first time in a long time but there continues to be demand. The same goes for Oakville housing prices, Burlington and Hamilton Housing prices. With new immigrants wanting to live in the GTA, it’ll be interesting to see where there tipping point of supply and demand plays out.

Tertiary markets like London continue to be a hot bed for investors and young families looking for more affordable housing. London home prices have dropped marginally but continue to do well because of higher demand.

The Burlington housing market should be quick to rebound given its proximity to the city of Toronto and family favorable neighbourhoods.

For a further discussion as it pertains to your situation or to gain further insight, please reach out to The Regan Team at info@reganteam.ca