Affordability challenges remain in the eastern market
The Bank of Canada’s latest rate hike was expected to knock some wind out of the housing market resurgence – but activity is continuing at a rapid clip in Nova Scotia, according to a broker based in the province.
David Clarke (pictured), president of Dartmouth-based Clarke Mortgage Group, told Canadian Mortgage Professional that many of his clients were still seeing multiple competing offers on properties, with bids often spiralling well above asking price.
“There was a very short period where we thought maybe it would go back to [properties] going for normal purchase price but it seems like the market’s taking off again,” he said. “Because there are still a lot of people looking to buy things, it didn’t seem to slow down too much.
“There were a couple of months where people didn’t know what to do. It seems like the increasing interest rates have been taking some people out of the market – but because we had such a huge surplus of people trying to buy and nothing to buy, it didn’t take away our specific market.”
That said, housing affordability has taken an unsurprising hit across the province because of the Bank of Canada’s rate-hiking policy, which saw eight consecutive increases followed by a pause in March and April before another 25-basis-point jump this month.
Many existing homeowners have seen their monthly interest rates and payments skyrocket as a result, with Clarke noting a spike in refinances and an amortization-extension surge as borrowers scramble to adjust to the new reality.
Still, many prospective homebuyers appear undeterred by that rising-rate environment, he added, and are pushing ahead with their plans to purchase – a move that could be unwise in the current economic climate, depending on each case.
“A lot of my clients are stretching their budgets to try to get more money to get into a house, but affordability has definitely been a concern,” he said. “It just seems like if people have to choose [between] having affordability issues or not owning a house in general, they’re kind of optimistic that they’re going to make it work.”
The central bank is anticipated to increase its policy rate to 5% by the third quarter of this year to reach its highest point since 2001, per Bloomberg’s latest monthly survey of 25 economists.https://t.co/vKDqs1TdzS#mortgagenews #ratehike #interestrates #mortgageindustry
— Canadian Mortgage Professional Magazine (@CMPmagazine) June 26, 2023
How are conditions for first-time buyers in the Nova Scotia housing market?
For new entrants to the market, hearing what their monthly payment is likely to be can prove something of a shock. Clarke said some clients have had an unrealistically low expectation of what they might be required to pay on a mortgage in the current market, with many basing their outlook on where interest rates lay when they hovered around record lows.
That’s partly because home prices have also spiked in recent years. While the year-to-date average price of a home in Nova Scotia ($426,707) fell by 3.6% this year compared with the first five months of 2022, average monthly prices have ticked upwards in recent months – and the idea of an affordable home in the province is shifting, according to Clarke.
Eyewatering rental prices are also creating challenges for hopeful buyers who are seeing little difference between the cost of renting and buying a property, but aren’t able to stomach the downpayment.
“The purchase price is so above what it used to be,” he said. “It used to be that you could buy a house in Nova Scotia – I guess the average house for $250,000. That doesn’t exist anymore. But rents are also so expensive in our area. Even with how expensive houses are in proportion to what they used to be, sometimes owning a house is still cheaper than renting.”
Crunching the numbers
In May, Nova Scotia saw home sales increase for the fourth month in a row, according to the Canadian Real Estate Association (CREA).
That jump – which arrived prior to the Bank of Canada’s latest rate hike – only slightly offset a big year-over-year slowdown, with May sales down 17.6% over the same time last year.
For the period between January and May, home sales came in at 3,925 units, a huge 28.7% drop compared with the first five months of 2022.
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