When the rumors of the Bank of Canada’s interest rate hikes started to circulate last year economists were quick to point out how they would almost certainly factor into a cooling of the housing market. Now that the higher rates have been in place for a while we are starting to see this factoring occur, and we should be keeping in mind that there may be further rate hikes in the not-too-distant future either. And we will be plain about it and say that a cooling of the housing market is in line with interests of the collective good as homes in so much of the country are priced out of reach for the types of people we would want to see in those homes.
As expected, the biggest price depreciations are being seen in the big cities and those who are in favour of falling home prices also tend to be people living and hoping to one day be able to afford to buy there. Ideally that is something that is attainable for them, and we need to remember that a home is part of facilitating the right progression through life for people who are at that stage in it where they are ready to settle down and start a family.
At the same time these price drops will not be in the interest of those who have equity in their homes, and especially when it is the case for so many where that equity and increasing value is a key to their future retirement plans and / or to help their children with owning a home in the future. Both of those are very noble aims, and here at Real Estate leads our online real estate lead generation system is ideal for real estate agents who are new to the business and keen to increase their wealth by working in what is a potentially lucrative but VERY competitive business.
What it can do for new client generations is readily apparent for anyone who has already taken advantage of it. One thing that will happen if home prices continue to drop is that there will be more potential clientele as ever-greater numbers of people can get a home in line with what they’re approved for in a mortgage. But enough about that for now, and let’s look at back-to-back months of home prices dropping in greater detail.
Down 6% Overall
Canadian home prices went down 6% to $746,000 last month (April 2022), and primarily as the result of higher interest rates putting a new chill on what was a red-hot real estate market that had been red-hot for a long time. Home sales themselves dropped 12% nationally in April, and as mentioned the biggest declines have happened in big cities like Toronto, according to the CREA. What we can assume now is that the $816K median price for a home in Canada that was seen in February 2022 will probably stand as the high water mark for some time now.
In March it went down to $796 and that of course was right in step with higher interest rates taking effect. And let’s not look past the fact that a decline in April is one that is happening during a month that is typically strong for the housing market, with lots of buyers typically buying homes in April and May of each year as has been the case for many decades.
May Be Misleading
The CREA is quick to remind people that the average selling price can be misleading because it is easily skewed by big cities like Toronto and Vancouver having such a high number of expensive homes sales, and just more home listings and sales in general. They point to the House Price Index (HPI) in this argument as a better gauge of the market. It is better because it adjusts for the volume and type of homes sold.
And although prices are indeed down from their recent peak, they remain up by about 7% from where they were at this time last year, and that is likely because we are still experiencing the pent-up demand affect resulting from the pandemic. But nonetheless the housing market is cooling from the feverish activity that characterized it just a few short months ago. The numbers put out by the CREA are national, but there’s no debate that Toronto and Vancouver are dragging them down. Especially Toronto, where prices have decline by about $80,000 since March.
This has the potential to be a problem for both buyers and sellers. While it is true that lower prices may be welcome news for buyers trying to get into the market, they can be majorly dissuading for someone who might have been listing their home without hesitation if prices were higher. Let’s keep in mind that lack of supply is the number one factor that is keeping real estate markets hot here in Canada.
Another scenario is someone who bought high assuming lenders would loan them a certain amount and then discovering in the appraisals process that the property is much less valued by the bank than anticipated. What this does is force the buyers to have to come up with more than they were expecting to need up front.
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