Andrew's Musings - July
Saturday Dec 17th, 2022
The return to rationality
Canadian real estate has softened considerably since March, and has jolted from unsustainable and irrational high-flying prices to a buyer’s market. However, the price reductions have done little to improve the affordability challenge, given the rising cost of mortgages, inflation, and sky-high gas prices. Few economists had expected that the housing market would be so quickly impacted by only marginal interest rate increases, and with more on the way, it paints an uneasy picture for the near term. The average household with a mortgage spends more than 54% of gross income on housing, circa 33% after tax, and there are few signs of relief on the horizon. For these reasons, most buyers are waiting to see where rates will settle-out, and for prices to drop further.
Apologies, more doom and gloom
The average five-year fixed rate is now circa 4.2%, more than double of a year ago, and still climbing. To curb run-away inflation, the BOC is set to raise another .75% this month, some predict as high as a full 1%, meaning higher mortgage rates still. As mortgages roll over, requiring renewal, many home-owners will either have to extend-out their amortization periods or pay much higher monthly premiums.
Despite moderate rate increases, the impact to prices has been immediate and significant throughout the GTA, with some regions more impacted than others.
Price changes since March:
• Toronto -6.5%
• Durham -20%
• Halton -17.4%
• Peel -16%
• York -15.6%
In the coming months, there will be likely be more choice and more price flexibility, and a time to get creative with deal-making. Additionally, without the frenzied bidding-wars, buyers may return to reason, and take the time to perform due-diligence, such as home inspections, and mortgage approval, which formerly made offers uncompetitive. So the upshot is that buyers can expect more choice at lower prices with more time to consider the options.
Rosedale, 87 Glen road is a sensational semi-detached with a fantastic yard, which easily could have fetched $4.7 to $4.9M at the peak before March. After a couple of price reductions, it sold for $3.8M, saving the buyers a full million dollars!
We are also seeing iconic Muskoka and Lake Simcoe cottage properties becoming available, so please be in touch if you’re thinking of making an acquisition or for anything real estate as always.
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