This summer has been a time for stabilization in the Canadian real estate market. Home prices levelled out, inventory inched upward, and buyer hesitancy returned to soften sales. Now that summer is almost to an end, what might we see happen in the fall market? Here are the 5 market predictions our real estate experts have their eyes on:
Investors and Buyers to Jump Back Into the Market
Following the spring rebound, national sales began cooling off in July, declining by 0.7% from June, and gave new listings a chance to return to healthier levels. Seasonality can somewhat predict the rate of activity in the real estate market and the two hottest seasons tend to be early spring and early fall.
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“Most people put their homebuying plans on hold in the summer, but buyers – both investors and homebuyers – will be back from the summer hiatus with renewed energy and focus,” said Lauren Haw, Zoocasa Broker of Record & Industry Relations Officer.
With that being said, sales activity for this summer has surpassed last year in most major markets including Greater Vancouver, Greater Toronto, Calgary, and Hamilton-Burlington. So although activity has slowed, it is still an an improvement from 2022 and an indication that interest rate hikes are not deterring motivated buyers.
Sellers Playing a Waiting Game
While buyers are expected to be reanimated in the fall, it’s unlikely that sellers will be matching that energy. “Sellers, afraid of the rate rise and quiet media over the summer, will wait through September to see what prices do before deciding to list or not,” said Haw.
The Online News Act, or Bill C-18, will start having a more significant effect on the media this fall as Canadian news content will be blocked from platforms such as Facebook and Instagram, limiting the ways Canadians receive information. Correspondingly, real estate news will not be as readily available for consumers with questions or concerns about the market, leading to hesitancy and caution among sellers.
“If the demand is there, sellers will list, but not until they see renewed interest,” added Haw.
No Immediate Improvement for Low Inventory
New listings in July 2023 started to catch up or surpass 2022 levels in many major markets, but it will be a while before inventory issues completely disappear. Rising immigration coupled with increased international student enrolment is especially straining the affordable housing supply in post-secondary cities such as Guelph, Kitchener-Waterloo, and Kingston. A recent 90-page report published by the student association representing Kitchener-based post-secondary institution Conestoga College cited the absence of reliable housing as one of the key concerns for students at the college. Continued demand is in effect keeping prices elevated, and according to Rentals.ca, the average rent in Canada reached a new high of $2,078 in July 2023.
Active sellers are one ingredient needed to help push supply upwards and that relief may come later in the fall. “This continued, historically low supply of homes will keep prices buoyant enough to give some sellers confidence, with new listings likely to peak in October,” said Haw.
Rate Hikes to Impact Condo Supply and Prices
Against the backdrop of rising rents and increased mortgage payments, the popularity of condos is noticeably growing. According to the Toronto Regional Real Estate Board, condo apartments in Toronto Region were the only property type to experience a month-over-month increase in price in July, rising by 3.42%, and at the same time sales increased year-over-year by 26% – the largest increase among all property types.
Despite strong demand, high interest rates are putting investors in a difficult situation. “Condo investors continue to have a hard time covering carrying costs and they’re not making a profit, which is leading many to sell their investment properties,” explained Haw. “In turn, we can expect continued inventory growth which will put downward pressure on prices.”
Slowdown in Pre-Construction Industry
It’s not only the condo segment that’s struggling with high interest rates; the pre-construction industry is taking a hit as pre-con buyers are seeing values drop resulting in firesales – that is selling units at significantly lower prices usually due to financial distress. According to the Canadian Home Builders’ Association, 22% of Canadian homebuilders cancelled projects in the second quarter of 2023. As borrowing rates have continued to rise since then, it’s likely this figure will continue to increase.
“Pre-con buyers are walking away from deposits and taking losses so as to avoid closing. Some are simply handing the units back to the builders and the builders are reselling them at a discount,” said Haw. This may lead to developers even leaving some projects unfinished due to labour shortages, the rising costs of materials and current mortgage rate conditions.
Buyers interested in pre-construction homes should work carefully with a real estate agent who has knowledge about the specific project in order to ensure a good and secure deal.
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