05 May WHY ARE SELLERS STARVING TO GET AN OFFER?
Don’t look now, but what has happened to the real estate market? Only weeks ago, it was pandemonium for buyers trying to lock in a home purchase before the seasonally adjusted craziness of the spring market. Bidding wars saw dozens of offers. Homeowners vacated to hotels in preparation for the frenzy of buyers that would soon be lining up down the street for showings. The winds, however, have shifted and now sellers are starving to get an offer, let alone a showing.
The market has changed for a variety of reasons including buyer fatigue, rising interest rates and an increase in the housing supply.
At the beginning of the year, the Bank of Canada (BoC) announced that interest rates would rise in 2022. For the first time in over 20 years, the Bank of Canada increased rates by more than 0.25%, with a 0.50% hike to the Prime Rate. Prime is now 3.20%. The 50-basis-point hike shows that the bank understands it has fallen behind the curve in terms of fighting inflation and is now trying to catch up. This is slowing the growth of the housing market.
According to Matthew O’Neil of Connolly Capital Mortgage Solutions, one of Canada’s top mortgage brokerages, Canada’s five-year government bond is at a three-year high and will continue to increase. Investors are pricing for inflation risk and fixed rates continue to rise with five-year terms, now above 4% on conventional mortgages. This is putting pressure on buyers and challenging affordability.
Rising interest rates have put more stress on buyers who face fatigue in the market from the whirlwinds they faced in February. Many are missing out on the home of their dreams as a result of astronomical prices. Some houses are selling in a matter of hours, before a buyer even has a chance to see the home, causing even the most fit buyers to feel fatigued.
The good news for buyers in most markets across South-and Southwestern-Ontario is that we are seeing the usual spring flood of new inventory, which helps balance the supply and demand. Buyers who were pre-approved for a lower rate are hurrying to secure a purchase before their rate lock expires.
So what does this mean for sellers? I’ll gaze into the crystal ball and say that prices might stabilize instead of rising at unprecedented levels. Sellers will need to monitor supply in their given neighbourhood and watch the ebbs and flows of buyer demand. Interest rate hikes won’t help buyers or sellers but a lack of housing might offset the rise in rates and make for a more balanced market as we head into the second half of the year.