Real Estate prices whats the future look like - TORONTO, ONTARIO, October 4, 2023
However, despite the market being better-supplied with listings, the average selling price was up year-over-year. ( 3% overall and 8% detached in the 416 )
Borrowing costs will remain elevated until end-2024. Demand should increase for ownership housing in the second half of next year, as interest rates begin to lower and record population growth spur an increase in buyers. The economists have been surprised by this real estate pricing trend as they predicated we would see sharper price declines which has not materialized.
REALTORS® reported 4,642 home sales through TRREB’s MLS® System in September 2023 – down 7.1 per cent compared to September 2022. The year-over-year dip in sales was more pronounced for ground-oriented homes, particularly semi-detached houses and townhouses. On a month-over-month seasonally-adjusted basis, sales were also down slightly. New listings were up strongly on a year-over-year basis from the extremely low level in September 2022. The number of listings also trended upward on a month-over-month seasonally adjusted basis. The MLS® Home Price Index (HPI) Composite benchmark was up by 2.4 per cent year-over-year. The average selling price was up by three per cent over the same time period. On a month-over-month seasonally-adjusted basis, both the average selling price and the MLS® HPI Composite benchmark edged lower by less than one per cent. “GTA home selling prices remain above the trough experienced early in the first quarter of 2023. However, we did experience more balanced market in the summer and early fall, with listings increasing noticeably relative to sales. This suggests that some buyers may benefit from more negotiating power, at least in the short term.
sourceTRREB: –
The Bank of Canada says home price drops driven by the recent hikes to interest rates weren’t as steep as monetary policymakers would usually expect, thanks largely to a “structural” lack of supply.
But economists say the housing correction likely isn’t finished, with more declines to come.
Typically home purchases are among the most sensitive parts of the economy to respond to interest rate changes, as they’re big-ticket items, when interest rates come down, house prices move up a bit and usually house prices move down as interest rates go up. Home prices did see a modest drop in the first stages of the Bank of Canada’s tightening cycle. Between March 2022 when the central bank began its rate hikes to January 2023.Canadian Real Estate Association data shows an 18-per cent drop in the aggregate benchmark price of a home.After that point, home prices rose another eight per cent in the spring rebound before peaking again in June, with a relatively slower decline in aggregate prices observed nationally since then.Stephen Brown, deputy chief North America economist at Capital Economics says “Really, it’s that rebound that was the surprise,” he says of the spring resurgence."
From the Bank of Canada’s view, the “structural lack of supply” of homes has been a barrier to a steeper housing correction.
The Canada Mortgage and Housing Corp. has said the country needs to add some 3.5 million housing units to restore affordability in the market by 2030.
Home prices might have further to fall
Rachel Battaglia, an economist with RBC, agrees that home prices have been “buoyed” by a lack of available supply in spite of higher ownership costs tied to rising interest rates.
The most recent easing in home prices since June has come with more regional variation than the downturn of 2022, Battaglia notes. Canada’s most expensive housing markets in Ontario and British Columbia have taken a harder hit while some cities in Alberta like Calgary are continuing to see growth.
But both Brown and Battaglia , believe home prices have further to fall as the pain of higher interest rates takes hold on homeowners in the months ahead.
“The downturn is likely to last a few more quarters,” says Battaglia and Brown expects higher interest rates will continue to drag on home resales, driving a price decline of roughly five per cent from today’s levels.
TD Bank economist Rishi Sondhi echoed Brown’s forecast in a report released Thursday, calling for a five-per cent drop in average prices and a 10-per cent drop in sales activity by the end of the first quarter of 2024, at which point he expects activity to pick up again.
Mortgage holders feeling vulnerable
Brown’s estimates for the housing correction assume there won’t be a high degree of forced selling among current homeowners, many of whom are feeling stressed about renewing their mortgages into a higher interest rate environment.
Nanos polling between Sept. 8-14.2023 reports almost 40% of mortgage holders are set to renew in the next 18 months. Of that cohort, 74 per cent say they’re worried about the impact of higher interest rates,
While the central bank indicates that “financial stress” has risen among households since the pandemic, it finds that delinquency rates for mortgages remain near “all-time lows.”
The same can’t be said for other types of credit, which are seeing a growing share of borrowers falling behind on payments by 60 days or more, the report showed. It singled out delinquency rates on car loans as surpassing pre-pandemic levels as of late.
Consumers will typically do everything in their power to avoid missing mortgage payments and having to sell their home, he says, which could mean defaulting on other loans first.
When people cut their spending elsewhere to stay on top of rising mortgage payments, that’s a force that can chill the economy and lead some companies to job cuts, Brown explains. That loss of income can act as the final domino that forces a homeowner to default on their mortgage.
“We see weakness in those auto loans, credit cards as a precursor to a weaker economy and job losses, that then triggers higher delinquency rates for mortgages,” he says.
If the Bank of Canada feels it has to keep its policy rate higher for longer, and the economy sees a deeper downturn than expected, Brown says a steeper price drop of 10-20 per cent is in the cards next year.
“If the bank is forced to keep interest rates high for longer … then it increases the risk that we see job losses and therefore forced home sales and therefore a much, much greater weakening of the housing market,” he says.
Bank of Canada governor Tiff Macklem said Wednesday that the economy’s pathway to a “soft landing” that tames inflation without falling into a recession is “narrower.”
RBC is projecting Canada’s unemployment rate will rise a full percentage point from today’s levels to 6.5 per cent a year from now.
Battaglia also pointed to Canada’s mortgage stress test, which makes homebuyers and mortgage renewers qualify at higher rates to guard against potential jumps in the cost of borrowing, as giving another “safety net” to the housing market to avoid a wave of forced selling.
A gradual rise in unemployment and “quieter sales” in the coming quarters should help swing conditions into the housing market back to buyers’ favour, she says.
source Global news
Comments
Post a Comment