Falling sales and prices have gripped the market in recent months
While a pronounced slowdown has gripped Canada’s housing and mortgage markets in recent months, home sales and prices are likely to eventually bounce back strongly – and in the meantime, there’s some opportunity for buyers, according to a leading mortgage broker.
George Hugh (pictured), president and CEO of Taurus Mortgage Capital, told Canadian Mortgage Professional that while the rising-rate environment of the past several months had largely sidelined the supply-demand imbalance in the housing market, that issue was likely to rear its head again as soon as activity begins to pick up pace.
“Even though as a result of [rate hikes] the housing market seems to be down a bit, sales are down, prices are down, I think it’s just masking a problem that we have,” he said. Indeed, once interest rates begin to tick downwards again, “I think the housing market should pick up again.
“Rates rising, the housing market slowing – I think it’s a temporary thing, because over the last seven, eight months, just like everything else, there’s been a ton of pent-up demand for housing.”
Why falling home prices are a boon for some buyers
House prices across many parts of Canada have fallen over the past year, notably in Toronto where new data from the Toronto Regional Real Estate Board (TRREB) showed the benchmark price had slipped by almost 10% on a year-over-year basis between December 2021 and the same month in 2022.
Sales in the city’s metropolitan area had fallen by 48% in the same period, TRREB said, and for those who are in a position to buy, that cooler environment represents an excellent opportunity to pull the trigger on a purchase, according to Hugh.
“I’ve had clients that were buying a home, and their price was $1.25 million, $1.3 million for the entry-level home where they wanted to live. They’re picking them up right now for $1 million,” he said.
That’s not to say that there’s an abundance of available properties on the market – in fact, new listings in Toronto in December were down 21.3% compared with the same month in 2021, sliding from 5,177 to 4,074.
“When you look around every single neighbourhood in the GTA [Greater Toronto Area] for right now, and I look around how many for-sale signs [are] on the street, there’s zero,” Hugh said. “So no doubt the economic environment has caused people to lose some stuff. They’ve been put in bad situations where [they’re] forced to sell, without a doubt.
“But I think there’s an opportunity to buy homes that have a cheaper price than it was just seven, eight months ago.”
Inflation will likely remain the dominant economic force in Canada this year, according to BMO Economics.https://t.co/IdrzmNL7Ib#mortgagenews #mortgageinsights #inflation #canadianeconomy
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 5, 2023
Could immigration heat up the housing market?
Another factor that’s expected to play a big role in Canada’s housing market in the coming years is immigration, with the federal government having announced in recent days that the country welcomed a record number of new permanent residents – over 437,000 – during the course of the last year.
That will have significant implications for driving up demand in the market and boosting the Canadian economy, Hugh added. “There’s a labour shortage, and I see it all over the place. It’s typically at the lower-end types of jobs, and typically these are filled by new immigrants,” he said.
A sizeable number of new immigrants bring skilled labour and income, too. “And so they end up in the big metropolitan cities, and then it’s going to increase the demand for housing here,” said Hugh.
Canada’s banking regulator recently opted to leave its mortgage stress test rate unchanged, with the Office of the Superintendent of Financial Institutions (OSFI) keeping that rate at the greater of 5.25% or two points above the contract rate.
That was the correct decision, according to Hugh, to dovetail with efforts by the central bank to cool the Canadian economy and puncture inflation.
“If you reduce the stress test, that makes it easier for people to buy homes – you just give the fire more fuel,” he said. “So the first thing we’ve got to get under control is the interest rate environment. And reducing the stress test, or going to 35-year amortizations or 40-year amortizations, would just increase the need for further interest rate hikes.
“We’ve just got to get the interest rate environment to a level where people are comfortable, where people have an expectation of where it’s going. And from there, they can make adjustments. It would have made it easier for brokers… but it’s not about making it easy for us. [It’s about] getting the core economic problem under control before you put any kind of stimulus in.”
What are your predictions for Canada’s housing market in 2023 and the direction it will take? How are you expecting immigration to contribute to mortgage demand this year? Let us know in the comments section below.
