Anyone who has even the most basic interest in real estate will be familiar with the terms ‘buyer’s market’ and ‘seller’s market’, and you will probably also be aware that in major metro centres in Canada it’s primarily been a seller’s market for the better part of 2 decades now. With all sorts of factors – and rising interest rates first and foremost among them – that has changed over the course of 2022 and as we get closer to 2023 Canadian real estate is going to continue to be more of a buyer’s market.

That is a very welcome change for people who are hoping to get into the market, and even if you are someone considering selling your home sometime soon you will likely agree there needs to be more a of balance here. There certainly hasn’t been for a long time now, and so while some will hope the pendulum shifts the other way we likely agree it should come to rest somewhere more in the middle. This is especially true for cities where affordable housing is needed, and that doesn’t just apply to Canada’s biggest cities anymore.

Realtors will see it this way too, and despite what one would see as the obvious advantages to the market being a seller’s market. What is happening right now with regards to the downturn is making it difficult for some, but here at Real Estate Leads our online real estate lead generation system is very effective for countering that and making it easier to generate new clientele. It is particularly recommended for agents who are new to working in the real estate business and working in an area of the country where the business is especially competitive.

Back to topic, we’ll take this week’s entry to talk about the current advantages for homebuyers with this slowed market in more detail.

Added Time

Canada’s housing market is currently staggering under rising interest rates and sagging sales, and this means the prospects for buyers are now considerably better than they were before. Everyone has heard about bidding wars and the FOMO phenomenon that was pushing people to act rashly when it came to submitting offers on homes. So one of the biggest benefits of the market slowdown is that would-be buyers have more time to properly evaluate what they want to do.

60% of markets in Canada saw home sales drop between August and September according to the CREA. Monthly sales activity came in 32% below what was recorded for October of last year, and prices were down 1.4% between August and September of this year. What is more notable is that the declines took place in major markets – the Greater Toronto Area, Vancouver, Calgary and Montreal, and these are areas where high demand typically always neutralized market forces that were major factors elsewhere.

In a hotter market a buyer might have no choice but to put down offers on multiple properties to have a chance at one, and still perhaps be outbid on all of them. The market is less fluid now, still with plenty of inventory. Less competition means that buyers can take the time to have that second look before they make their offer.

More Conditional Sales

Agents are also saying they’re starting to see conditional sales offers come in again. Before it was usually a scenario where buyers had to put in their best bid, but now they can put conditions on their offers. This is smart when those conditions are related to securing financing, insisting on a home inspection, or checking on insurance requirements.

Connected to this it is interesting to note that the buying intensity seems to be concentrated on properties at the lower end of the market, and in desirable markets like Toronto and Vancouver those would be homes for sale in the $800,000 to $1-million price range. This suggests that more entry-level buyers now have the confidence and self-assuredness to be buying homes for themselves.

Some will say it’s ‘crazy’ that entry-level home purchases cost near to a million dollars, but it is what it is for these big cities and it really does come back to the age-old reality of what the market will bear.

Good for 2^nd Time Buyers Too

Realtors will tell you this is a promising market for second-time buyers too. Those who have had ‘seller’s remorse’ because they didn’t get as high a price for their house as they could have last year may now be able to buy their next house cheaper than what they would have paid last year. This is an aspect of an increasingly seller’s market with real estate in Canada that doesn’t get talked about as much, but it is worthy of mention because the number of homeowners who move into a new primary residence within 2 years of purchasing a home is higher than ever before.

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It was a few months back when the Provincial government in British Columbia announced that it was implementing new legislation intended as measure to protect consumers who are left with no choice but to ‘act fast’ when buying a home given how competitive it is in the housing market. What it is essentially doing is giving buyers an opportunity to back out of an agreed purchase of a home if they realize they may have overleveraged themselves in order to buy it.

That in theory is a good thing, and especially considering the severe financial hardships that can occur for people if they are forced to go ahead with purchasing a home that they really can’t afford. It’s worth mentioning here given the nature of what we do that a good realtor is one who can be expected to steer their clients away from these potentially stormy waters. But there are going to be instances where the client insists on putting in their offer on a home one way or another and so there are plenty of reasons why this cooling-off period is a good idea.

But there are others that means it is not such a good idea at all. Homeowners who have a sale agreement in place with would-be buyers may move forward with their purchase of a new home, and having their buyer being able to back out of the agreement may throw a major wrench in their plans. So their needs to be a balance, and realtors who are struggling to generate clientele no matter how high a level of service they provide will want to consider our online real estate lead generation system here at Real Estate Leads.

It’s an excellent way to utilize the power of Internet marketing to get a leg up on the competition when it comes to finding and securing new clientele. And from there you can do just that – focusing on providing them with the expert guidance they need when buying or selling a home.

But lets’ get back on topic and share more of what we know about the BC real estate cool off period legislation.

Homebuyer Protection

The cooling-off period is properly being referred to as the Homebuyer Protection Period, which is different from the pre-offer period, and it begins immediately after the agreement is signed between seller and the buyer. It is equitable between both, but some believe the property legislation stacks the deck too much in favour of home buyers. It’s helpful to know if you have clients who this may apply to that a termination fee of 0.1 to 0.5% of the price has been recommended to be paid by buyers who pull out of a deal.

Critics have been vocal in opposition to this, and understandably. Leading that is the belief that this property legislation will be mostly ineffective for addressing the disparity between the listing price and the purchase price, a difference that can often be hundreds of thousands of dollars. The next concern is how it will work in practice.

The BC Finance Minister placed an independent financial agency to look into how cooling-off period would work, but the primary aim was always to have it in place for the busy 2022 summer real estate season. Critics within BC’s real estate sector do not approve of the legislation, and point out the act citing that proper stakeholder engagement would clarify why the cooling-off period is a bad idea.

One thing that is for certain is that a cooling-off period will do nothing to address rising real estate prices. Among realtors the majority belief is that it might be better to have a 5-day presale period where a new listing goes online but no offers are allowed. This would preempt sellers having the uncertainty of being locked up in a cooling-off period with just one buyer whose deal may or may not come to fruition.

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There are plenty of things in life that will be disconcerting for you but you have no real control over. That may well be the case for homeowners who were hoping to sell their home sometime soon and realize some of the equity they’ve built up in it. The Canadian housing market has done more than just cool over the last 9 months, it has dipped quite considerably with regards to median home prices and what that is doing is making some of these would-be home sellers postpone the move and not put their home on the market.

That’s very much an is-what-it-is scenario and the unappealing news for any who is disconcerted by dropping home values is that the continuing declining in those home values may continue much more emphatically than first anticipated. We are getting towards the end of 2022, and recent news that caught our attention here is that the Canadian Housing and Mortgage is now sharing their belief that the home price decline foreseen for next year may be much more pronounced than they originally thought it would be.

This is something that definitely comes up on the radar here at Real Estate Leads, and if this works out to more home sellers postponing their move then that does have a trickle-down effect that constricts the amount of business out there to be had for real estate agents. It’s for that reason among many others why our online real estate lead generation system is so advisable for agents that want to maintain their flow of new real estate clientele.

With that said, let’s turn our attention with this entry to more about how expectations have changed with regard to the extent home prices are going to continue to decline into next year.

Inflation / Rate Hikes Factoring In

The CHMC is predicting a steeper decline in the Canadian housing market, and the primary reasons for that are higher-than-expected inflation and interest rate hikes. Their update housing outlook that came out on Thursday of last week shares their indication that the national average home price in Canada will likely go down by 14.3% by the second quarter of 2023, and that’s start in comparison to the historical peak of $770,812 that we saw in the first quarter of this year.

It was earlier in July of this year that they said that a high interest rate scenario would result in average home prices declining 5%per cent over the same period. The inflation context is central behind all of this, and StatsCan’s numbers on this showed prices rose annually around 7% in August, along with core metrics staying hot. The Bank of Canada has been emphatic that its benchmark rate will need to rise higher still before the end of the year to tame inflation.

The central bank’s policy rate is going to go up to 4% by year’s end, while at the start of this year we were at 0.25%. What this means is that those inflation figures and inflation pressures have been stronger than expected, and the BoC has had no choice but to be more aggressive with their policy rates. This means even more extensive home price declines are now a possibility moving into next year.

Potential Recession Role

The CMHC also concurs with many economists that Canada will fall into a recession in the near future, and with the prediction that the national economy will have a downturn before the end of 2022. A recession could reduce demand in the housing market, based concerns of job losses and lower earnings dampening buyer activity.

An independent report by a major national real estate brokerage shares that fears of a recession are prompting more than 1/3^rd of Canadians to put their plans to either buy or sell a home on pause, and adding to that the CHMC believes that drops in sale prices will not improve housing affordability much.

On the other side of that, buyers can have more confidence in price dynamics going forward, with Canadian real estate not being likely to experience more sudden interest rate shifts like those see in early 2020 or so far through 2022.

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For decades now investing in real estate has been a staple for investors in Canada, and as we all know many of those who invest in real estate in Canada aren’t residing in North America. The propriety of that is certainly an issue of contention among some, but with one Federal Government after another relying on real estate to prop up the country’s GDP we can say definitively this isn’t going to change. Let’s also keep in mind that a good amount of the people who are investing in real estate aren’t deep pocketed or have expansive profiles, while of course many do have both of them.

Over the course of the last 15 years or so it’s been nothing but positive when it comes to real estate investments in the country, and finding ones that didn’t promise to be profitable were few and far between. That sort of positive outlook and enthusiasm has been tempered recently as the market has slowed and many economists believe that Canada may be on the verge of a recession. The prospect of going from what has been a bull market for close to 2 decades to a bear market does have some people concerned about the future values of their investments in real estate.

But it seems that the majority of real estate investors are concerned, but not to any extent that will cause them to really fret or reconsider the investments they have in Canadian real estate. This is of course good news for realtors who work with clients who are often buying real estate in Canada an adding it to their investment profiles, but market downturns of any sort mean less overall activity and that’s a counter to all of that. Here at Real Estate Leads our online real estate lead generation system is an excellent way to keep new clientele coming no matter how the market is currently going.

Let’s get back on track and use this week’s entry to look at why real estate investors continue to have a positive outlook on investing as we get into the back third of 2022 here.

Stable Over Time

Fears of a recession are definitely playing into investor moves, and the bear nature of the stock market is a reflection of that right now. A double-digit tumble for the TSX Composite Index fell has led to real estate taking a big hit, and as we know the purchasing power of people has been curbed big-time by sky-high inflation. Plus rising interest rates have made mortgages expensive, combining with real estate prices that peaked during the pandemic recovery are now going in the other direction. So the question is should real estate investors be intimidated by this bear market?

Looking south briefly for a comparison, in the 20 bear markets that have occurred in the the United States since 1952, real estate values increased in 18 of them. Property prices are in part determined by the health of the economy, and right now house prices are above pre-pandemic levels. Whether they will fall as demand slows and new properties enter the market remains to be seen, and it is true that supply overtaking demand promotes a lot of real estate being for sale. Those who have cash in hand are best positioned with this buying opportunity.

REIT Stock Prices Down / Income First Approach

The stock price of real estate investment trusts (REITs) are down considerably right now, due to the fair market value of their investment property being diminished due to weakness in property prices. REITs with ample cash reserves always use a bear market to buy more income-generating properties. Enhancing their rental income in the future becomes possible with this if they manage to get the desired occupancy rate.

An opportunity to lock in higher distribution yields is created with the steep decline in REIT stock prices, and inflation has increased rent renewal of almost all REITs, which sort of cancels out gains made during the pandemic and the economic realities that came along with it. While REIT distributions remained unchanged, the dip in their stock price inflated the yield.

Recession-Proof Real Estate?

The real estate industry has survived recessions before, but some properties are more resilient than others here. Depending on the recession’s severity, a REIT could see higher vacancy rates, lower rental income, and slow demand. If you’re an investor considering becoming a part of one at this time, you should be looking for REITs with deep pockets, lower debt obligations in the near term, and healthy distribution payouts that can weather a recession. Plus REITs with a rich portfolio of hot properties may well bounce back faster.

Investing in real estate in a bear market will depend on whether or not REIT stock prices might continue their downtrend throughout the recession. Exhausting your remaining Tax-Free Savings Account (TFSA) limit on certain REITs is an option, but experts say it is better to invest small amounts every month. This will give you ample cash and a TFSA limit to buy REITs throughout the bear market and bring down your investment costs.

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It’s well understood that Alberta is a place people can look to for more affordable real estate, and if you can be gainfully employed in the Province it’s certainly true that you can get more for your money with housing there. The majority of people who do relocate to Alberta will probably be moving to Calgary or Edmonton, although there are some nice smaller towns there too if you can make a go of it there. The Province is blessed with some amazing natural beauty, and anyone who has been there will agree with that.

Calgary real estate may cost less on average than in Vancouver, Toronto, Montreal, or Halifax, but it’s Edmonton of the two where you can still buy a detached home for a reasonable price. This has long been part of what’s drawn people to Edmonton, and of course they love their hockey too just as much as any of the more traditional cities in the regard. But it would appear that Edmonton isn’t safe from the real estate market slowdown that is occurring across the country in Canada.

No one is disputing the fact that interest rate hikes from the Bank of Canada were very much needed to combat the ongoing inflation, but the unintended side effect is that financing the purchase of a home becomes a lot more challenging. It is what it is, and people who are first-time homebuyers will still often find a way. But the ever-fewer numbers of homes being sold as a result of this can be trying for everyone, and including those who work in the business as realtors.

It’s for this reason that our online real estate lead generation system here at Real Estate Leads is so highly recommended as a means of drumming up new clientele even when there’s fewer of them to be had. But we’ll leave that part for now and instead use this week’s entry to talk about what’s going on with Edmonton-area real estate and slumping home sales there.

Down 24%

Our friends at the Edmonton Realtor’s Association are stating that Edmonton saw the first large decrease in home sales since interest rates began to rise earlier in 2022. A 24% drop was seen in total residential sales in the greater Edmonton area for July of this year compared to the preceding month, June. In addition they have new residential listings declining month-to-month since June but countered by an overall increase of 6.2% from July 2021.

While decline in the later months of summer are common, a drop of this size is but the chair of the Association is saying he thinks this is a trend that will continue. It’s expected to be a marginal decrease and shouldn’t be anywhere near double digits. The estimate of a 1%-or less decline by the end of the year is realistic, and then the market should rebound for Spring 2023.

Let’s keep in mind as well that across Canada home sales dipped the same 24%  from this time last year while the national average selling price has declined almost $200K since the record of $816,720 was set in February 2022. How things can change, and drastically.

Mortgage Renewal Concerns

Single-family homes in the Greater Edmonton area averaged $489,370, which works out to a 5% year-over-year increase. The average for a condominium was $229,463, and that equates to a small decrease of 4.4% year-over-year. The reality being created here is that there are going to be people facing mortgage renewals and perhaps realizing they can no longer afford the home they’re currently living in.

In addition to the volume of home sales now being back to about what it was before COVID-19, there is also the fact that there is more of a gap between what sellers have become accustomed to and what buyers are prepared to accept and pay.

The Canadian Real Estate Association said Thursday that the number of homes that sold on the real estate group’s Multiple Listing Service has had a decrease for 6 months in a row now.

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