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Interest Rate Hike Prominently Factoring into Greater Toronto Area Condo Market

Published July 18, 2022 by Real Estate Leads

Though some may be skeptical, there is absolute economic soundness to the argument that interest rate hikes are necessary to put the brakes on inflation. It’s not the first time this has happened in Canada, although it is the first time it’s occurred in the wake of a Federal Government being loose and carefree with money in a way never seen before in this country. That part of it is what it is though, and it should be noted that Canada joins nearly ever First-World country in struggling with inflation at this time. So while there is little to like about rate hikes in the here and now, the fact is they are necessary.

Part of the ‘little to like’ will obviously relate to certain aspects of the housing market in Canada, and it appears that is now especially true for the condo market in the GTA. Is that because many condos are owned by investors who paid too much for them? Yes, there’s some of that in it but it is more complicated than that. Keep in mind that condos have long been the standard for people buying a first home for themselves, and the natural process is for that rung on the ladder to be vacated some years later and the situation repeats itself as a new generation of 1st-time homebuyers buy an affordable first home for themselves too.

What we have now is a scenario where rather than condos going onto the market – owned by investors or not – they are being retained (and perhaps even being rented for less) rather than being sold at a price where they wouldn’t have been worth the value the mortgage was negotiated for. The same can be said for other types of homes, but those other types of homes haven’t been filling a very specific part of what has been the organic process in this all for a long time. Here at Real Estate Leads our online real estate lead generation system is ideal for realtors who need an advantage during a time when fewer homes are going onto the market.

Swinging back on topic, what is to be made of how the BoC’s recent hike is continuing to have major ramifications for the Greater Toronto Area condo market.

Pushing Down Prices

The rise from the BoC this week was 2.25%, and the rise is reverberating across the region’s housing sector, with the most notable effect being condo prices dropping significantly. The issue with this of course is the fact the condo prices were the ones to rise most dramatically over the last years after those for single-family detached homes. But the difference is A) there are many more condos on the market at all times, and B) these are the homes that the majority of 1st-time homebuyers would have seen as affordable, all things considered.

That may still be the case, but a rate rise of this size and promised ones in the future are really putting a damper on the market, as fewer would-be buyers qualify for a mortgage and the owners of condos increasingly decide now is not the time to sell. It goes without saying that inventory is absolutely key to regulating prices organically for all types of homes, but it is an especially sensitive issue with condos and even more of a focus in desirable locations like Toronto and Vancouver.

12% Decline Since March

The current median per-sq ft price for condos is $832, and that works out to a 12% drop since March of this year. The estimation is now that individuals buying condos here are paying an average of 1% below asking, and as we all know paying below asking for any type of property has been simply unheard of for a very long time now. Look no further than just a handful of months back in Feb 2022 when homebuyers were paying on average 15% above the listed price for condos in the GTA. 

Now we have inventory plateauing there too, and of course what that works out to is a buyer’s market. Some will welcome the opposite end of the spectrum there based on the fact it’s been the opposite for so long, but balance is always best and a healthy housing market is never one that leans too far towards being a buyer’s market. That’s the basic economics of it, and that takes into consideration the additional value that everyone has in their homes, including those who haven’t bought theirs yet.

Supply Down in City’s Core

The trend of people returning to the city core as back-to-work trends continue means that supply is down in the city’s core, and that means that the average price per square foot has increased every so slightly as people come back to downtown Toronto. The average price of a condo in downtown Toronto is now $1,102 per square foot—a $3 increase so far in July—or roughly $882,680.

But with rents skyrocketing and not coming down in step with price values going lower, we have a situation where would-be sellers who don’t like what they see are relisting their condos on the rental market instead. A recent spike in terminated listings may be explained by this. The average lease price for a condo is currently $2,700 per month, and that’s up 15% from  last year.

Fierceness in the rental market, and the reason it doesn’t move with home value decreases, comes back to supply and demand exclusively. With that in mind, realtors can advise clients that despite the downturn if a property is well maintained, well located, and priced competitively it will still sell and likely relatively quickly in places like Toronto and Vancouver. The same cannot necessarily be said for other types of homes, but condos are unique in what they offer at or around a certain price point.

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Global Downturn Foreseen to Affect Canadian Real Estate Most

Published July 11, 2022 by Real Estate Leads

The long-forecasted ‘correction’ in the Canadian real estate market is here now, and as is always the case some are better situated to be weathering it than other. Many have predicted – accurately – that it is going to those who have large amounts of money invested in housing AND those who overleveraged themselves to buy homes recently who are most likely to feel the pinch. That’s a reflection of the fact that there certainly are negative aspects that come along with the positive one. That being that homes are more normally priced for people who need a place to live.

So there will always be people with interests on either side of this, along with others who have some skin in the game based on how the make a living for themselves. When house values drop dramatically over a short period of time there are definitely aftershocks that rumble through different communities. For real estate agents in Canada the biggest part of the drawback of seeing this happen is that many homes that would have gone onto the market are now held off it, at least for now while prices are lower. This can mean fewer new clientele of both buyers and sellers, but here at Real Estate Leads our online real estate lead generation service is an excellent way to counter this trend.

We’ll leave that there for now though, and instead return to focusing on the market downturn for real estate in Canada. There are experts that are saying that Canada is the country that is going to be most affected by it, and that doesn’t bode well for many of the same people we’ve talked about above here. Let’s take our entry this week and have a deeper look into this and what it might mean for home and property owners here.

Attributable to Canada’ Extreme Price Boom

All of this comes from Goldman Sachs latest publishing on rising interest rates around the world. The BoC actually raised ours again today, and further rises are expected throughout the remainder of 2022. The very low rates we’ve seen over past decades now have stimulated record home sales and a multi-decade high for inflation. But the exact opposite is happening now and it’s removing home buyer stimulus. Home price declines are now expected across most advanced economies but Canada is expected to have the sharpest drops, and that’s because of the extreme price boom it has seen since 2018 and one that up until now had many homeowners decidedly pleased.

We are seeing rising mortgage rates in the US, Canada, the UK, and New Zealand and they are definitely cooling home sales already. The US has had a major drop themselves – around 40% nationally and again even higher rates are on the horizon and expected to slow housing even further.

Falling home sales nearly always mean falling home prices, but not all places adhere to this trend. We are also seeing that home prices are still rising in the US, Germany, and the UK. But when all of this becomes problematic is when home sales fall much faster than inventory, and this is what we are seeing in Sweden, Australia, and – most prominently – Canada.

Another notable trend that is unique to Canada among all these countries is that house prices have fallen the most in areas that had the most growth early in the pandemic.

Biggest Drop

Industry experts foresee a modest drop for home prices over the next couple of years, but Canada is expected to see the biggest drop as real home prices will likely fall up to around 12%. France –  9%, the US – 3%. Keep in mind with national prices it is the inflated markets where bigger declines will be soon. The biggest takeaway for readers here can be this; The slowdown will be sharpest in Canada and this is the result of weak recent momentum, continuing low affordability, and rapid policy hikes by the Bank of Canada

Having a tight housing market may counter this trend somewhat and prevent a full-on slump, but the rapid deterioration in affordability and large drops in home sales paints a picture where a major housing downturn is on the immediate horizon.

Worst Housing Affordability for Advanced Economies

It is this deterioration and ongoing lack of affordability that is going to be what keeps buyers from jumping in until home prices decline. Looking back to early 2020 there was brief surge in affordability at the start of the pandemic, and that is obviously due to rates being cut lower at that time. What happens here is an age-old economic equation, with affordability eroding rapidly as the market adjusts to absorb the increased credit capacity. This is why low rates and the increased market activity caused by it haven’t improved affordability, and won’t anytime in the future either.

Here’s what we do know; low rates produce housing bubbles in advanced economies. But when you add monetary policy errors to the mix in certain advanced economies, the negative affects of higher rates are amplified big time. This is what we are beginning to see here in Canada and it will be and interesting yet anxious time for many as they wait out this storm.

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Readvanceable Mortgage Option Failure Advances Risk for Over-Leveraged Homeowners

Published July 4, 2022 by Real Estate Leads

Readvanceable Mortgage Option Failure Advances Risk for Over-Leveraged Homeowners

Even if you are not a savvy real estate investor you likely what the term ‘underwater’ means when it applies to someone who has recently made the decision to pay more than they likely should have when buying a home. There is risk to everything in life, but there have been literally hundreds of economists over the years who have been saying it is very much buyer beware given the fact that the market must eventually home values come down. A buyer will be underwater if they owe more on their new home than the home is worth, and that’s a very real concern with what is happening now in Canada.

The potential problem is very acute in the markets that always make the news, and that’s in the big metro areas where housing has been crazily in demand for a long time like Toronto and Vancouver areas. FOMO is the acronym for Fear of Missing Out, and this is what spurred so many recent homebuyers to make the choice they did and pay more than a home should be worth. It’s the fear that this would be their only chance to get in, and for what it’s worth this has been a profound trend in many other countries around the world over the last few years.

The agents that work with both homebuyers and home sellers need to be attuned to these trends, and as has been the case with every market cooling period ever seen there are fewer homes going onto the market too. Perfectly reasonable if you’re a homeowner who doesn’t absolutely need to sell at this time, but what it does is mean less of the proverbial pie to go around. If you’re a newer realtor you may need help gaining clientele, and it’s true that our online real estate lead generator here at Real Estate Leads is ideal for that.

But staying on topic track here, there was a recent proposal for a new mortgage product that might have helped over-leveraged buyers, but the Feds have made sure that went nowhere and we thought it might be helpful to provide an overview on it, and what might have been.

Combo Mortgage Product

So what exactly would a readvanceable mortgage be, and why did it get shot down?. It was one that combine a traditional mortgage with a revolving line of credit. As the homeowner paid down the principal, it would increase in size. The benefit would be in allowing them to immediately re-borrow, and do so even when the total loan goes past the 65% limit of the appraised value of the home.

Further, if that is to also include the amortized portion then homeowners would have been able to borrow as much as 80% of the value of their homes. The only caveat being that the amount would be minus any outstanding debt on the original mortgage. Sounds fairly reasonable, no? The only immediately apparent obstacle would be the risk of having homeowners in persistent debt.

That would certainly be the case if it required borrowers to pay both the principal and interest on any combined loan amount above 65% of the home’s value, and it’s here where the wheels started to fall off this proposal and reason #1 it was rejected at the Federal level.

Other Contributing Factors

Being able to borrow up to 80% of the value of homes by using advanceable mortgages repeatedly was certainly going to appeal to homeowners for any number of reasons, not the least of which would be the ability to buy additional properties and then either rent the unaffordable home OR sell it when the time is right.

Yes, a HELOC (home equity line of credit) accomplishes much the same, but the difference is immediately apparent because the owners would be forwarding their mortgage rather than borrowing against the equity in their home – something recent homebuyers likely wouldn’t have much of anyways.

But as it stands now here we are with the Bank of Canada aggressively increasing its benchmark interest rate to combat inflation, and the result being Canadians who continue to tap into their homes for cash could be left owning a small portion of their property when all is said and done.

Also factoring in here is how higher borrowing rates have put the housing market into a near freeze and house values are going down, considerably in some regions. Technically, lenders could require partial repayment if a newly-appraised house falls below the required value to cover the amount owed.

Last but not least, readvanceable mortgages might have been a good fit for those who have been damaged by making poor choices with their HELOC. Not the focus here for sure, but something that needs to be kept in mind. There certainly is merit to what the Federal Government has done here based on the unsteadiness of the move, but there needs to be an ongoing conversation about what sort of options might exist for people who have over-extended themselves buying a house.

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It’s an excellent way to supercharge your client prospecting efforts, and it’s highly recommended with the competitive nature of the real estate business in Canada.

Price Gaps Between Suburban & Urban Canadian Real Estate Narrowing

Published June 27, 2022 by Real Estate Leads

That we are in the midst of a slowdown with Canadian Real Estate is indisputable at this time, and we all know that both inflation and the rise in interest rates are playing major roles in that. But what is both interesting and concerning – depending on where you own a home or where you’d like to buy or invest in one – is that homes in suburban regions may be taking much more of a hit than ones that are more within city limits. This of course has everything to do with demand for urban living continuing to insulate the market there more, but there is more to it than that.

This is even more relevant with the way that so many people have bought and moved into homes that are far from those city limits over the last 2+ years, and the reasons they did so don’t need any explaining here. What may need explaining though is a much more detailed why as to those houses losing value more quickly than their metro counterparts. Any type of downturn has serious ramifications, and it is not just the homeowners who will feel the pinch if they must sell soon for whatever reason.

There are real estate agents who work primarily in these suburban regions, and what happens when home values in an area drop significantly is that homeowners who were thinking about selling now choose to postpone that move and see what happens with the markets some ways down the road. That means fewer homes for prospective buyers too, even though there will be more of them than sellers given the opportunity to pay less for a home. Business can dip, and for realtors who are concerned about new clients in this way our online real estate lead generation system here at Real Estate Leads is a smart choice.

This is a relatively new phenomenon with suburban home values being considerably more at risk for falling values that urban homes, so it makes sense for us to look at it in more detail.

Smaller City Slowdown

What we are seeing now is that during the COVID-19 pandemic the gap between downtown real estate and houses in the suburbs has closed significantly. What this does is create a marked change from the way things have always been.

The workings of that are unique to this occurrence and perhaps this time in human history, and it is likely that this trend will be occurring in other countries too. Whether or not they occur in countries that have so much of their personal wealth and National GDP in real estate is a different question, especially as no other country has painted themselves into a corner in this way quite like Canada has.

But to the working themselves; the cost and inconvenience of commuting is typically a downside to suburban living, but as working from home became the norm for so many people during the pandemic that old standard came to change quickly. It’s been well detailed how so many people took advantage of this new working arrangement and chose to buy cheaper – and often better fitting – housing outside of the city.

House prices did take off just about everywhere during the pandemic, but the gains were definitely largest in the suburbs. What that did was make them less affordable today than at any time in the past.

Comparison

In 2016 a house in the suburbs located 50k outside of downtown would on average be worth around 33% less than a similar city home. If we look at 2019 even that gap had slimmed to 26%, while at the same time the bank was calculating that the average cost benefit had diminished all the way to just 10% for the end of 2021.

Again, this was driven in large part by buyers moving farther away from the city as needed until they would qualify for a mortgage based on the local home prices, a phenomenon that the industry began to call ‘drive till you qualify.’ Also factoring in was the same FOMO that has been going on for years, with people believing that home prices were never going to fall and some people saw the need to get in before new mortgage stress-test rules came into place nationally.

The trend has changed though, and it is not uncommon now for workplaces that previously embraced working from home to now being insistent that staff return to the office at least part of the time. This factors into the housing market quite directly, as suburban markets that saw outsized gains during the pandemic are now experiencing price declines while the metro city housing market holds fairly steady.

This may be a blip, or it may be a situational outgrowth of the trend of home prices cooling more than before due to BoC rate hikes and other known factors. The Bank is not offering much to work with to this point, but it does believe the narrowing price gap between the suburbs and downtowns could become a problem if preferences shift back toward the way they were prior to early 2020.

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Homebuyers in Canada Returning to Look at Major Cities When Buying Homes

Published June 20, 2022 by Real Estate Leads

Much was made of how the Corona Pandemic had more people than ever before seeing an opportunity to not be attached to city living and getting out into homes in more rural areas of Canada. That was indeed a trend, and continues to be a valid one. Although to a much greater extent if you are to read into what a new survey from the Bank of Montreal is indicating with regards about the type of prerogatives most people have for buying homes now.

Now meaning in an era where although the pandemic isn’t over, we’re moving well out of the restrictive phases of it and more and more people are returning to work in the office like they did before early 2020. Let’s also not lose track of the fact that there are always plenty of people looking to move to the cities for the first time too, and as is always the case that is true of many educated young professionals who may have come from smaller town Canada but have studied and earned degrees in these cities and now starting their careers there is the logical next step.

It’s the same as it is in any country where the majority of real estate agents will be working in the major metro areas of the country, and if this trend of more people returning their focus to city home ownership then the logic would be that is going to be beneficial for these realtors working there. There may be some truth to that, but it also enhances the competitiveness factor. Here at Real Estate Leads our online real estate lead generation system for realtors is an excellent resource for realtors newer to the business who aren’t as well established when the business becomes more competitive again.

That’s always true, but let’s stay on topic and look at what more the survey revealed about changing homebuyer preferences in Canada as they are happening here in the middle of 2022.

Metro For Me Please

Those of us who have no choice but to be in urban areas may be a little astonished that anyone would choose to live here if they didn’t have to, but it seems that mentality is definitely not the norm. Plus, it is important to remember that not everyone who can work remotely is completely free of other factors that necessitate them living in the city. Property ownership, family, and access to care are just 3 of a long list of factors that may be part of a person’s reality too.

The BMO survey came back showing that interest in buying a home in a major city centre has risen 5% since last year. As mentioned above, this is something of a marked change as Canadians began looking beyond the boundaries of large cities for their housing choices. Work-from-home arrangements may have allowed them to do this, and rising home prices in the last two years may have been the impetus to actually go ahead and do it.

Now the situation for many seems to be quite different. It is the city centres that are attracting more interest from buyers, and at the same time the preference for moving further from the city has seen a similar decline. There are other changes to Canadian’s home buying habits lately too, and the results seem to indicate that Canadians have developed a willingness to change their plans in response to rapidly changing housing and housing market conditions.

Finances in Order?

Another consideration here is the way that BoC Interest Rate hikes are slowly but surely bringing down the median prices for homes in these desirable locations.  Financial hurdles are always going to have a major impact on the purchase plans for homebuying consumers with regards to what they will buy and when they are looking to buy it. Respondents to the BMO survey said they will likely need to spend more if they choose to buy in the city, but now there may be more value and bang-for-buck in doing so.

It also showed that 68% of respondents were willing to change how much they spend on a home purchase, and around 73% of potential homebuyers even said they are now willing to spend more. The reasons listed for spending more on a home include increased home prices, income growth (individual or couple), and the pandemic realities having increased their personal savings to result in more money available for a down payment on a home.

Around 1/3 of respondents indicated that they expect to pay 10% or less for a down payment and two-fifths foresee relying on help from family to have enough funds, although less of that help being required than might have been the case at this time last year. Perhaps most interesting here is the amount Canadians expect to spend on their homes has gone up 26% in just the last year. This in unision with the average spend coming in at $588,000. Ontario buyers were the highest here with an average expected spend of about $790,000 and they also saw the highest increase (around $200k per home.)

Last but not least, we’re seeing a lot of demand for mortgage pre-approval these days, and that’s not surprising given the promise of even more rate hikes from the BoC. 30% of survey respondents (8% more than last year) said they are already pre-approved to buy. Another 43%3 were aiming to be pre-approved in the near future.

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Near 25% of Homeowners May Need to Sell Home if Interest Rates Go Even Higher

Published June 13, 2022 by Real Estate Leads

There have been warnings from economists all across the country that interest rate hikes are going to occur again here in Canada, and they’re going to occur because they need to occur to combat inflation along with more simply getting into line with what rates should be. Long story short they’ve been kept artificially low for a very long time, and while there were reasons for that type of regulation the fact is that the economy can’t be geared for pandemic recovery forever.

Now to be fair, the majority of homeowners in Canada have been smart about buying the home they did, and most of those same people have managed their personal finances in a way that has let them move towards ownership of the home by being able to afford their mortgage and still have the lifestyle they’ve envisioned for yourself. Some may say that in many cases good fortune helped them do that, but to be fair there are a lot of older homeowners who bought their homes in the early 80s when 18% mortgages were the norm.

Will this mean more homes are going to go onto the market? Nearly certainly, but not so certain is whether or not that will be a huge plus for anyone working as a real estate agent. It is always a competitive business and more homes going onto the market won’t necessarily mean an uptick business for any one realtor. What likely will though is use of our online real estate lead generator here at Real Estate Leads. It is proven for helping you be directly in touch with people who are ready to make a move in the real estate market.

Let’s stay on topic though and look at the what the potential fallout of more interest rate hikes as it relates to homeowners making decisions about whether they can afford their homes anymore.

Shades of Early ‘80s

Regarding those 18% mortgages in the 80s, here we are roughly 40 years later with another incompetent Trudeau printing money to the long-term detriment of the economy. But we won’t digress into that, and will only say there are always very real consequences to bad monetary policy when it occurs at the Federal level. While interest rate increases aren’t attributable to that, the severity of their affects on the average Canadian’s budget very much are and some homeowners are about to find they’re that much more over-leveraged with the home they recently bought.

An online survey conducted by Manulife Canada between April 14 and April 20 of this year found that just under 20% of homeowners polled are already at a stage where they’re realizing their home is unaffordable for them, even if they’re currently living in it and managing to make the mortgage payments – for now. That’s because Nearly 1 in 4 homeowners are foreseeing no choice but to sell their home if interest rates go up further.

And that is in the process of happening, with the BoC overnight rate rising by half a percentage point to 1.5% on June 2, and in the response to that more than 1 in 5 Canadians expect rising interest rates to be detrimental with the impact on their overall mortgage as well as debt and financial situation.

Many are in that reality right now, with the three hikes seen so far this year having a significant impact on their household’s monthly cash flow. To give you an idea here, one that had been budgeting $2,600 a month on variable rate mortgage at the start of 2022 would be paying about $400 a month more now as result of the rates rising 125 basis points so far.

Financially Unmanageable

That is a serious amount of money, and it is not the type of quantity that can be made up for by cutting corners elsewhere. This is all an outgrowth of how over the last two or three years, very low interest rates have encouraged many Canadians to take higher mortgages. Unfortunately the same truth as always applies – you need to have a very firm idea of what you can afford, and especially considering that most people will have been advised of the potential repercussions of rising rates.

In fairness, this is something that a good realtor will take the initiative in making their clients understand long before they start making offers on properties. Yes, there is a mortgage stress test and it’s become much more stringent recently. But obviously there are buyers who passed it when in reality they should have had the common sense to pass on homes they can’t afford.

Wave of New Listings?

This creates an age-old situation where some stand to benefit at the detriment of others, and of course with more housing supply available there will be real benefits for people who haven’t been able to get into the housing market so far. But some homeowners will stand to lose their home, and even though that may be in large part their own doing it’s not something anyone should be happy about.

There is a belief that most homeowners should be insulated from a rapid rise in interest rates thanks to that federal mortgage stress test but many of them working with some credit unions or private lenders could be exempt. In these scenarios they may be qualifying for a mortgage rate of either 5.25% or two percentage points higher than their actual rate, whichever is higher.

The reality now is that Canadians who rushed into the housing market during the pandemic on the promise of low mortgage rates at or below 2% should be very clear on the fact that the time to renew is fast approaching with rates around 4% now the norm. This has the potential to double their monthly payments, and of course many simply won’t be able to afford that unless they find some way to drastically increase their income and do it quickly.

1st-time homebuyers who jumped into real estate during the pandemic will likely see these rates rising for the first time and it definitely could be a wake-up call or even a cause for buyer’s remorse. Experts suggest those who are thinking to buy a home and haven’t done so already should ask mortgage advisors about what they should expect for the next three to five years.

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GVA and Fraser Valley Home Prices Drop in Response to Interest Rate Hikes

Published June 6, 2022 by Real Estate Leads

No need to necessarily be an economist to have forecasted that median home prices in Canada were going to go down as a result of the BoC’s inevitable interest rate hikes. Everyone knew this was coming, and of course that includes those who’d stand to be the least thrilled about it – home owners considering selling their home anytime in the near future. That said, the values of said homes in comparison to what most of these owners would have paid for them should be taking a good bit of the sting off anyways.

But going up and going down is what markets do, albeit not with any frequency when it comes to real estate in British Columbia and Canada as a whole. Which is a good thing when you consider how much the real estate industry contributes to Canada’s GDP, and whether or not that’s a good thing in the big picture (it’s not, but we won’t digress). Having homes retain their value increases to a significant extent has been what the informed homeowner will have been hoping for when understanding that the market couldn’t – and shouldn’t –  stay that heated forever.

Real estate agents worth their salt will have their thumb on the pulse of all of this, and it is true that even in the ‘best’ of times real estate is a competitive business given how lucrative it can be for people who have the smarts and are willing to put in the work required to be successful. Those who are new to the business may be surprised to find just how competitive it really is, and for these individuals our online real estate lead generation system here at Real Estate Leads is highly recommended.

The typical home price came in at $1,261,100, which worked out to a 0.3% decrease compared to April 2022. This goes along with an annual basis price that represents a 14.7% increase over May of last year. This applies to Burnaby, Coquitlam, Maple Ridge, New Westminster, North Vancouver, Pitt Meadows, Port Coquitlam, Port Moody, Richmond, South Delta, Squamish, Sunshine Coast, Vancouver, West Vancouver, and Whistler.

But back to topic as always, let’s look at the numbers and other noteworthy considerations about median home values have dipped in the Greater Vancouver area and Fraser Valley these days.

Marginal Drop for both Regional Districts

New monthly reports from both the Greater Vancouver and Fraser Valley REBs came a day after the Bank of Canada hiked its interest-setting rate by 0.5% percent on Wednesday June 1st. This was the third increase in 2022, and it brought the central bank’s key rate to 1.5%. At nearly the same time the Greater Vancouver REB reported the next day (June 2nd) that the composite benchmark price for all residential properties went down month-over-month in May.

What this means most pertinently is that the rising interest rates are making many home buyers put a lot more though into making decisions in today’s housing market. We are also seeing upward pressure on home prices beginning to ease in the housing market over the last two months, and even the most ambitious realtor is going to tell you this is absolutely something that had to happen in the big picture, despite what it might mean for folks who have only recently entered the market.

Focus on Coming Supply

Greater Vancouver home sales totalled 2,918 in May 2022, which represents a 31.6% decrease from the 4,268 sales that occurred in May 2021, and a 9.7% drop from the 3,232 homes purchased by homebuyers in April of this year. Add to that the benchmark price of a detached home in the region in May 2022 was $2,093,600, a decline of 0.4% from April while rising 15% from May 2021.

Apartment homes saw a smaller increase, with a benchmark price for this region being $779,700, up 0.4% from April 2022 and 15% compared to May of last year. Attached homes had a typical price in May 2022 of $1,141,200, working out to a 0.6% drop from April 2022 but rising 21.5% up from May 2021.

Statistics for the Fraser Valley REB – which covers Abbotsford, Langley, Mission, North Delta, Surrey, and White Rock – were quite similar although not quite as pronounced. It was quick to note falling sales, despite realtors in the region selling 1,360 properties for May 2022. That number works out to a 16.9% decline from April sales of 1,637, and being down 53.9% compared to May of last year.

Beginning in March, what has been seen is sales coming down with an accompanying increase in inventory. What this has done is provide a much-needed balance and cooling of the heated market and some people believe that the role of big pandemic-era drivers like working from home and record low interest rates may have come to an end now. Let’s hope so.

The price of a typical detached home in the Fraser Valley was an average of $1,712,500 for May, a decline of 2.4% compared to April 2022 while up 26.2% from May of last year. Townhouses in the region came in at $918,900 for townhouses, and that was a decrease of 1.4% compared to April 2022 and a 31.3% increase from May 2021. Apartments came in at $581,400, for the Fraser Valley, which is down 1.1% compared to April 2022 and up 30% in comparison to May of last year.

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76% Average Overvaluation of Toronto Real Estate is Highest in Canada

Published May 30, 2022 by Real Estate Leads

Ask anyone which of Canada’s biggest cities have the most overvalued real estate and every one of them would guess Toronto or Vancouver. The Bank of Montreal released data earlier this month that Ontario’s major metropolis is outdistancing BC’s in this regard, with a 76% average overvaluation that is presented in comparison to the average overvaluation of homes in the country overall at 38%. With interest rates rising (and another rate increase expected this week from the BoC) and the market becoming suppressed because of it, this overvaluation of homes is going to be more relevant in general. Particularly for anyone looking to sell a home and having expectations as to what is should sell for.

That said, the one factor that will keep the dip from being way too severe is the fact that the demand for housing will insulate home values to a fairly considerable extent. Enough to prevent the average homeowner’s concern about the depreciating equity they have in their home? Quite possibly, but that really does in large part depend on where you live. As a realtor you will be well served to have a strong understanding of the potential ramifications of declining home values in relation to overvaluations for home in the area.

This is all part of being a knowledgeable professional, and that goes a long way in securing clients who are ready to trust you to the point that they will buy or sell a home through you. A good thing considering how it can be difficult for new realtors to build up their client base, but if that struggle is something you’re going through right now you will benefit greatly from becoming an agent with maximum insight into Canadian real estate where you live, and taking advantage of our online real estate lead generation system here at Real Estate Leads may be a wise choice too.

But back to topic, let’s look at these home overvaluation numbers from more of a countrywide perspective here, and see if there are others than can stay within striking distance of Hogtown.

Over 50% for All Ontario

It’s not just Toronto, and the BMO data from the same report shows that average home prices were 55.4% overvalued in Q1 for 2022, and industry experts and economists say having any entire market overvalued so highly is a fair sign that a correction of some sort IS needed. This is with the understanding that when shelter costs rise too high they redirect capital away from the productive economy. This is around the understanding that housing a non-productive investment, since it doesn’t produce anything.

Add the fact that the larger mortgages become, the more future income buyers have no choice to borrow. Doing so means they are spending big share of the economy’s future labor value. More indebted households means slower growth for the economy, and the same basics applies for people who are renting their homes. Consider as well that younger adults spend a much higher share of their income on goods and services than older ones.

These same experts say a correction in housing values and the economic ramifications of it can go one of two ways. Either prices fall in real terms and the economy’s healthy balance is restored quickly, or prices continue to disconnect through policy intervention until the end result is systemic failure. That likely comes with a financial crisis.

Highest Overvaluations in the Suburbs

Metro Toronto real estate may be estimated to by around 40% overvalued, but it is in the suburbs of the GTA where those overvaluations are seen to be highest – in some places as high as 74%.

Some numbers around that? Sure.

  • Cottage country around Bancroft, Kawarthas, Muskoka-Haliburton, and South Georgian Bay is estimated to be 63% overvalued.
  • Cities that are just outside what would be considered a ‘satellite’ city – examples being Barrie, Guelph, Hamilton, Kitchener-Waterloo, London, Niagara, Orillia, St. Catharines, and Windsor – come in as being near 76% overvalued, and that is really somewhat staggering considering the way homes in these areas have been valued going back as far as the post-war period.

Leaving Ontario, what about other areas of Canada?

  • Quebec as a whole – 33% overvalued
  • Atlantic Canada – 35% overvalued
  • British Columbia – 21.4% overvalued (with a reminder that the Lower Mainland and Victoria certainly do not reflect the entirety of a very large Province)
  • Manitoba – 12% overvalued
  • Saskatchewan (-3.4%) and Alberta (-5%) are the two Provinces that buck the trend here and aren’t with overvalued property averages according to this same report

BC, Quebec, and Atlantic Canada are all estimated to be more than 20% Overvalued

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Downturn in Vancouver Real Estate Now Underway

Published May 24, 2022 by Real Estate Leads

Anyone with a correct understanding of the situation will have told you that the overheated housing market in Vancouver has primarily been the product of 2 factors. The first being demand far exceeding supply given the rate of population growth for the city, and the second – and likely the most influential one – is cheap money. What’s meant by that for anyone who might not have an understanding of economics is that it hasn’t cost much to borrow money in Canada for quite some time now. Interest rates needed to rise as it is and now that inflation needs to be repressed there was no choice for the BoC to raise the rates.

The market did need to return to some level of normalcy, and that’s true whether you’re a homeowner or a person who is looking to buy a home. That’s because people of average incomes should be able to afford a home that fits their family, and a city cannot forget that when creating policy. But what we are seeing now with Vancouver real estate will be bringing the value of homes down. Will they come down to the point that many more people will be able to buy a home?

That remains to be seen, but in a city like Vancouver you will see modest value decreases and overall it’s not a bad thing.

This will affect realtors working with certain clients and especially those who are looking to buy. But there will also be homeowners who will put off putting their home on the market to wait and see if home values in the Lower Mainland go up again in the future. Considering this has always been cyclical (albeit with some long cycles) that is likely, It can all be contributing to struggles gaining and retaining clientele and if so realtors are encouraged to use our online real estate lead generation service here at Real Estate Leads.

But more to the interest of realtors as it relates to this is that clients may be wanting to abandon purchasing commitments, and that’s a scenario realtors in this part of the province may have little to no experience with. Let’s look at the real estate cooldown in Vancouver in more detail here, as modest as it will likely be.

+ Recession?

The fact that many economists believe there is no way Canada is going to avoid a recession in the near future may well factor into all of this too, and again especially with regards to real estate in Vancouver or Toronto. We’ll see how painful the hit to the housing market will be for homeowners. Again for Vancouver and Toronto high immigration and migration from elsewhere in Canada may stimulate sufficient demand for housing to make any recessionary blow less impactful.

Right now there are areas of Vancouver where homes have sold for about 15% less than similar area houses did a few months ago. But as mentioned what we are also seeing is some homebuyers giving thought to walking away from their deposits and cancelling purchase commitments. Well, it’s not that easy and there can be repercussions, including lawsuits from others involved to compensate for any lost money.

For example, let’s say a home involved in a cancelled sale sells at a later date for a 10% discount. It is possible the courts could state the original contracted buyer who walked away from their purchasing commitment must now compensate the original owner for the difference in the home’s value.

Mortgage Factors Too

New and 1st time homebuyers will have difficulty finding a 5-year fixed mortgage for less than 4% today, while last year that same mortgage may well have been had for 1.5% or only slightly higher if at all. The Vancouver Real Estate board has stated that the benchmark price for all residential properties in Vancouver had a 1% price increase in April compared with March.

However, many industry experts and knowledgeable realtors will say this is an unreliable indicator of the current market because of its algorithm that determines what exactly a benchmark property is. Long story short, many of these people will see you won’t see real price declines in that home price index for at least 6 months, and probably longer.

Also consider Canada Mortgage and Housing Corporation’s April forecast suggested the country’s average home price would be around $782,400 by the end of the year, a drop of 1.7% from $796,000 in March. This will result in mortgages being more expensive, which may again take out the pool of qualified buyers who might want to consider purchasing a home at this time because of moderately lower prices.

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Canadian Home Prices Down for 2nd Month in a Row

Published May 16, 2022 by Real Estate Leads

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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Sign up for Real Estate Leads here and receive a monthly quota of leads for potential clients who have indicated their willingness to buy or sell a home in the near future and doing so in the city or town where you are working as a real estate agent. But what’s most relevant here is that only ONE realtor receives these leads – you! That means you have the exclusive opportunity to reach out to these people and offer your expertise to them as a person who knows real estate and will help them have the best outcome when selling a home or the perfect fit when buying a new one.