Braydon Hooper is ready to buy a home.
He wants a two-bedroom, two-bathroom condo in Toronto and is anticipating getting a good deal as the city’s real estate market adjusts to rising interest rates and plummeting sales.
“I’m hoping to find someone who’s been on the market for longer than they wanted and is willing to go lower with the price to sell,” Hooper says. “Or someone who’s flipped a home and is looking to sell quickly so they might go down in price with fewer people in the market.”
Hooper wants to jump on a property in the next month. Yet at the same time, he wonders “Do I buy now or should I wait?”
Rising interest rates and a flood of new listings have caused sales to slump this spring in what is normally prime real estate season. In April, home sales were down 44 per cent from the previous year and 27 per cent from March, according to the Toronto Regional Real Estate Board.
It’s having an effect on prices, which have cooled slightly. The average cost of a home in April was $1.25 million compared to the peak February $1.33 million cost, the TRREB report says. The market is shifting from a seller’s market (less supply and higher demand) to a balanced market, experts say.
Hooper hopes it turns into a buyer’s market — more supply due to less demand — quickly.
Already there are fewer bidding wars in parts of the city, real estate agents say.
But predicting the housing market is difficult and timing your decision to buy a home now while interest rates are going up and there are few bids, or waiting a couple of months in hope that the prices will drop further, is a risky game.
It comes down to your personal financial situation, says Murtaza Haider, professor of data science and real estate management at Toronto Metropolitan University.
People with higher incomes and substantial equity won’t be deterred by the higher interest rates. But those who have less income and equity are vulnerable to slight movements in interest rates. As interest rates go up, it impacts what prospective buyers can qualify for and therefore results in the bank giving a smaller loan, he says.
On April 13, the Bank of Canada raised its overnight rate by 0.5 per cent, after a 0.25 per cent hike in March, with another big jump set for June. Canada’s big banks have ratcheted up the prime rate to 3.2 per cent impacting fixed-rate and variable rate mortgages.
“If you are immune to interest rate changes the time to buy is now, but if not, then you need to seriously consider if this is the right option,” Haider says.
After evaluating real estate cycles for decades, he says, it’s impossible to predict the precise moment when prices go up or down.
“You either wait too long or jump in too soon,” he adds. “There is no right time. It’s only when your financial circumstances allow you to buy.”
Toronto real estate broker Wins Lai says when considering buying a property, it’s important to ask yourself, Do you have enough saved for a down payment? Is your job stable? And are you currently renting or living at home?
“If the answer is yes to all of these questions, then the time to buy is now. But it really depends on your personal timeline and if you really need this investment,” she says.
The current market has fewer bidding wars allowing prospective buyers to go in with conditional offers such as asking for a home inspection and securing financing, says Lai.
In a hot market there can be up to 20 offers on a home so prospective buyers are more likely to go with a pre-emptive offer, meaning there are no, or very few, conditions attached.
Even with fewer bidding wars and more conditional offers the cooling market has some buyers and sellers worried, says real estate agent, Mark Campbell.
“I’ve got a couple of buyers and sellers that have pulled their horns in a bit, waiting to see what’s going on,” he says.
With more listings available, people are tentative about where the housing market will go in the next few months.
Fewer bids mean sellers might hold off until prices creep up again. If prospective buyers purchase a property now, but housing prices drop further, they could face mortgage shortfalls in a few months when closing day approaches as their home value drop, Campbell says.
The buyers’ and sellers’ psychology during a period of correction in the real estate market goes through waves, says Phil Soper, president of Royal LePage.
As interest rates rise to pre-pandemic levels after two years of historic lows, it’s normal to be uncertain, he says.
“You will see both sellers and buyers unsure of what to do next,” he adds.
Even though sales have dropped significantly, prices haven’t followed in the same trajectory, Soper says.
A main reason for this is the lack of housing supply. Even with more listings on the market, Canada is short 1.8 million homes. The federal government is taking action but it will take years to fix this “serious social problem,” he says.
“The vacancy rate to buy or rent is still tight. That shortage buoys the value of homes.”
Correction periods in the housing market have been seen time and again — in 2009 after the recession, 2012 and 2018. The housing market always rises and falls, he says.
In the spring of 2020, house prices fell by six per cent. Many who bought property in December 2019 wished they’d waited just six months later to buy. But by the end of 2020 prices were up significantly.
“Trying to time the market…will just tie you in knots. If you don’t buy at the bottom of the price dip, it gets erased in months (as prices rise quickly again). What is your financial capacity and need? Judge it according to that,” Soper says.
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