Less than a year after buying their four-bedroom townhouse in Surrey, BC for $870,000, Aneesh Bhandari and his wife decided to sell their house in early May.
Both were looking forward to their first open house, Bhandari said, placing bets on how many showings the house would have. They later found out that only one person came to view the property.
“It was a revelation,” Bhandari told CTVNews.ca in a phone interview Thursday. “My real estate agent didn’t expect that, nobody expected that.”
Bhandari and his wife plan to move from British Columbia to Ontario to be closer to their employer’s office in Mississauga. But the process of selling his current home and buying a new one has been a struggle, the 36-year-old said.
After 30 days on the market, the 1,700-square-foot home listed at $1.15 million had yet to sell, despite listing $50,000 below similar homes in the area, Bhandari said. In mid-June, he took the house off the market.
“At that time, sellers were expecting yesterday’s price and buyers wanted tomorrow’s price,” Bhandari said.
After getting an extension from her employer to work from home until December, Bhandari now plans to put her home back up for sale in October in an effort to sell it before the end of the year.
Bhandari is one of several Canadians who wrote to CTVNews.ca about the impact Canada’s housing correction is having on their decisions to buy or sell a home. After a series of interest rate hikes implemented by the Bank of Canada, housing markets are now facing a correction that is “sweeping across the country”, according to a new Royal Bank of Canada report (RBC).
A drop in house prices, combined with lower resale activity, shows that property markets across Canada are now cooling off. According to the RBC forecast, average home prices in Canada are expected to fall through the rest of 2022. eventually falling 12 percent in mid-2023 compared to its peak in February.
“[This] it would be classified as a very significant correction,” Robert Hogue, deputy chief economist at RBC, told CTVNews.ca in a telephone interview on Wednesday. “Rarely do we see this type of double-digit price drop nationally.”
Rising interest rates have played a key role in correcting some of the windfall gains in home prices that Canadians have seen during the pandemic, said James Laird, co-CEO of Ratehub.ca.
“The last couple of years were irrational and some rationale to correct that exuberance is happening right now,” Laird told CTVNews.ca in a phone interview on Wednesday. “Given the red-hot pace of the last two and a half years, it seems logical now that we should take a breather.”
After hitting a record high of $816,720 in February, median home prices nationwide have been steadily declining, data from the Canadian Real Estate Association (CREA) shows. The median home price in Canada for the month of June was $665,849, not seasonally adjusted.
The lack of certainty in terms of what to expect from the Bank of Canada regarding further interest hikes may also be encouraging some Canadians to stay on the sidelines, Laird said.
“With the central bank still in a transition period from pandemic interest rate policy… to post-pandemic inflation rate policy, we don’t know exactly where the bank wants to go,” Laird said.
Facing a changing market fueled by falling home prices, Hogue said today’s sellers need to be pragmatic and recognize that the market is very different than it was a few months ago.
“Prices are likely to continue to fall in the coming months, so the market is unlikely to become more seller-friendly anytime soon,” Hogue said. “Buyers are entering the market with less budget… They have tighter limitations on [how much they can afford].”
MOST BALANCED TORONTO AND VANCOUVER AREAS
According to the RBC report, the large real estate markets of Ontario and British Columbia are expected to experience some of the largest corrections compared to other regions in Canada. The reason for this lies in the skyrocketing housing prices that have characterized these areas for most of the COVID-19 pandemic. Hogue said that these areas are therefore more sensitive to interest rate hikes.
According to data compiled by CREA, median home prices in Ontario and British Columbia peaked in February at $1,086,493 and $1,104,098, respectively. Both figures are not seasonally adjusted.
Since then, activity has slumped at its slowest pace in more than 13 years, not counting pandemic lockdowns. This leaves room for more negotiations between buyers and sellers as the market clears, said Frank Clayton, an economist and senior research fellow at the Metropolitan University of Toronto.
“[Buyers] you have to be vigilant because… there are always people who have to sell,” he told CTVNews.ca in a telephone interview on Wednesday. “Some people aren’t going to want to wait six or eight weeks hoping their house will sell, they might want the cash right away.”
While it may not be a buyer’s market yet in parts of southern Ontario, Clayton said, the markets appear to be more balanced. This is also the case in the greater Vancouver area, according to the RBC report. Real estate activity in the region is down 40 percent in the last four months, and home prices for all types of homes have also fallen 4.5 percent since April.
It’s also important to understand that some areas of these regions will feel the effects of a correction differently than others, Laird said.
“[Prices in] suburbs and more rural properties rose the most during the two years of pandemic exuberance…and those are the places [where] prices are correcting the most,” Laird said. “[But] urban cores did not rise as much as surrounding suburbs [so] They aren’t correcting that much either.”
HOMES EVEN ‘LESS AFFORDABLE,’ SAYS REAL ESTATE EXPERT
A Desjardins real estate outlook also points to New Brunswick, Nova Scotia and Prince Edward Island facing significant corrections, after home prices soared during the pandemic.
However, parts of Alberta are expected to be more resilient. Despite seeing price declines, the correction in this part of Canada is expected to be milder compared to others, Hogue said.
While average home prices may have been falling nationally, this doesn’t mean homes have become more affordable for Canadians, Laird said.
Lower home prices have been fueled by higher interest rates, forcing homeowners to pay more interest on their mortgages. With a higher cost of borrowing, those looking to buy a home are likely to qualify for a lower mortgage as a result, Hogue said. This makes it especially difficult for homebuyers looking to enter the real estate market for the first time.
Taylor Wright and her fiancé are currently renting a one-bedroom apartment while they search for a new home. Looking to buy in Ajax, Ontario. or Whitby, Ont., with a budget of $800,000, Wright said she and her fiancé remain off the market.
“Each home we are going to look at is still about $100,000 above asking price, and we are not about to get into a bidding war and overpay for a home,” Wright wrote in an email to CTVNews.ca on Thursday.
Having watched the province’s housing market since the start of the pandemic, Wright said he saw home prices “going higher and higher out of his reach.” Still, he said rising interest rates and cooling prices give him hope that, within six months, he will be able to buy a home.
Diordan Svelander and his wife are looking to buy a home in the greater Vancouver area. With home prices skyrocketing, he said they couldn’t afford a down payment on a house despite working two full-time jobs.
Svelander said he and his family tried to search north of town, in Chetwynd Township, BC. The couple had their eyes on a house, but as interest rates rose throughout the year, they could no longer afford it.
“The money we had saved was not enough to withstand the stress tests and we had exhausted all of our options trying to buy,” Svelander wrote in an email to CTVNews.ca on Wednesday.
As a result, the couple is now renting a two-bedroom unit with their two young children and their pets, Svelander said.
A Ratehub.ca recent report evaluated the income needed to buy an average house in different Canadian cities. So far, financial losses from higher interest rates have not been offset by gains from lower home prices, Laird said. In all Canadian cities included in the report, residents required more income, on average, to pay for a typical home.
“A year ago, you were more likely to buy a house with those high prices but lower mortgage rates … than with more modest house prices but higher mortgage rates,” Laird said. “It actually means that everything is less affordable than ever.”