Canadians across the country are experiencing fear of overpaying, a.k.a real estate FOOP. It’s no surprise following two years of real estate ups and downs, with many cities seeing record-breaking price gains just this past February. FOOP can be a powerful feeling, and as interest rates continue to climb, many would-be buyers and sellers are choosing to wait it out on the sidelines. In a recent summer survey of Zoocasa clients and readers, 60% of respondents said they are looking to buy a home in the near future, but 50% were planning to wait a year or longer. The question posed is, is this the right approach?
Timing the real estate market has never been easy. The past six months have seen vast changes across the country; buyer conditions are back, list and sale prices are trending down in many cities, and homes aren’t being snatched up quite as quickly as they were this time last year. If you’re suffering from real estate FOOP, here are some things to consider.
Buyers: Conditions are Back!
For most of 2020 and 2021, intense bidding wars were the norm, buyers had little negotiating power, and offers that were accepted with conditions were few and far between. As the first few interest rate hikes rolled out, we saw the market begin to shift. In its August report, the Canadian Real Estate Association (CREA) stated that we are currently in balanced market territory. The sales-to-new-listing ratio used to measure whether the market is balanced, favouring buyers, or favouring sellers, was at 54.5%, edging closer to the long-term average of 55.1%.
With this shift in the market, we’ve seen the long-awaited return of conditions. “We are seeing more conditional offers on the market following months of competitive, condition-free offers,” explains Lauren Haw, CEO and Broker of Record of Zoocasa. “This negotiating power means that some of the pressure has been alleviated from buyers, and aside from conditions, we’re seeing more wiggle room with prices as well.”
Average Sale Prices in Many Major Cities are Below Benchmark Prices
We know Canadians want to own homes. In our recent survey, 60% of respondents said they were looking to buy a detached house, but affordability is a major factor leading those who are currently in the market to lean towards more affordable property types like condo apartments and townhouses. In the same survey, 35.8% of respondents said that rising interest rates have had a negative impact on their interest in the real estate market. However, the rate hikes have also caused downward pressure on real estate prices across the country, including in many major cities.
In August, the average sale price of all property types in the GTA was 7.16% less than the benchmark price for the same year. Many other cities followed the same trend, including Calgary, Hamilton-Burlington, and Fraser Valley. We’re seeing the market begin to level out, albeit slowly, but these trends across the country show that buyers are negotiating sales prices and often coming out on top.
Average Property Days on Market are Increasing
Properties in 2021 were being snatched up in what seemed like less than 24 hours. This perceived sense of urgency often drove buyers to feel pressure to make an offer immediately or miss out on a property they were interested in. According to the Toronto Real Estate Board (TRREB), the average property days on market (Avg. PDOM) is the average number of days a property was active on the market before selling. This is regardless of whether the property was listed more than once. In Toronto and the GTA, this figure has grown by almost 62%, from 21 Avg. PDOM in 2021, to 34 in 2022.
Many other major cities are seeing a longer Avg. PDOM as well. In Fraser Valley, detached homes have been active for an average of 33 days, compared to 29 days in August 2021. Townhouses are spending more time on the market as well, at 26 Avg. PDOM compared to 19 in August 2021. This is good news for those that fear overpaying; if a property is active on the market for a longer period of time, there may be less competition, again leading to more room for discussion at offer time.
It’s understandable that many Canadians have a serious case of FOOP when it comes to entering the market. Whether you are renting, buying your first home, or looking to upsize/downsize, the past few years have made it difficult for Canadians to meet their real estate goals. With all the aforementioned in mind, if you’ve put your real estate goals on hold, it might be the right time to speak to a mortgage specialist to understand what you can afford and how prices have either declined or stabilized in your area. Our qualified real estate agents are here to help and ensure that whether you are buying, selling, or both, you have the data and information needed to get your dream home at a fair price.