The real estate market is an indicator of economic conditions. It is one of those industries that is cyclical. It varies within the year, with sales being more prevalent in the spring and summer than in winter. It also swings over a consecutive period of years as a natural economic occurrence.
As we are all aware, the Bank of Canada has been raising interest rates over the recent months. Prime rate increases trickle down to individual lenders so that the rate they quote is also higher. There is a lag time while the prime rate rises before it impacts individual communities.
At this point, it appears that the Bank of Canada still has some rate increases in the offing, but experts tell us that these upticks should at least slow down, if not end, by early next year. That certainly does not mean there is no chance of a mortgage loan. By selecting the right source, you can still finance your real estate purchase. You just need to be cautious and choose the best lender for your needs.
Checking the statistics, the number of real estate listings are 68% higher this year than last. There are still good properties being put up for sale. The sellers just need to practice some patience since it may take a bit longer to find the right buyer at the prices they want, or at least come pretty close. There are points where a homeowner will need to reduce their expectations and lower the price, but that is on an individual basis, depending on personal circumstances. There are rumors that the Government will increase the amortization period, but those comments have not been fully confirmed.
Let’s Look at the Numbers
The numbers for this October’s sales are down almost 50% compared to those recorded last year at this time and the average sale price is 5% lower. Yet, the average time a piece of property is on the market is relatively low. At the same time, buyers are finding it difficult to qualify for mortgages and the additional 2% stress test is not helping matters at all.
If the Canadian Finance Minister Chrystia Feeland is correct, the current strong economy will begin to drop and we will move into a recessionary period in 2023. With a lower economy, employers will be forced into layoffs and with job loss comes a change in the real estate market. Homeowners will not be able to afford the mortgage payments and may be forced to sell their property.
Is the Crash Imminent?
Right now it does not appear that a crash in the real estate field is imminent. However, homeowners and buyers should pay close attention to the details to make the best decisions possible. The biggest problem will be financing. Finding the right lender at a rate you can afford is a critical element for both sides of the real estate market.
Will the real estate market decline? Undoubtedly. The pendulum will eventually swing in its opposite direction. The question is, how quickly will this happen? A severely rapid downfall will result in a crash, but a more controlled leveling will simply make the real estate market a more lucrative opportunity for those who are interested. Keeping a cool head and maintaining a watchful eye on both the economy and the market availability is the key. Panic buying or selling will not help.