Ottawa housing market: major issue emerging

While the Greater Toronto Area (GTA) is the Ontario housing market that typically gets the most attention, another that’s seen some dramatic developments of late is Ottawa.

Canada’s capital city is gripped by a housing supply crisis that saw new residential listings plummet by 58% monthly in December, according to the Ottawa Real Estate Board – with levels now 15% lower than its five-year average.

That’s a trend that’s contributed to a sizeable jump in Ottawa home prices, with the average year-to-date sale price at the end of 2021 sitting at $719,605 – a 24% increase over the previous year.

While overall sales in December were 14% lower than the same time last year, the beginning of 2022 has seen an extremely busy market in the region, according to an Ottawa-based broker who said that there appears to have been little letup in activity.

Chris Allard (pictured top), a broker with Smart Debt Mortgages, told Canadian Mortgage Professional that high demand coupled with the market’s inventory issue was likely to offset the impact of impending rate hikes on both the fixed and variable fronts.

“For Ottawa, I definitely do expect it to continue being a very busy market,” he said. “The fact is, there’s a serious shortage of supply – so even if rates go up a little bit, and borrowers’ affordability goes down, I still think [the inventory problem] is going to outweigh the increased rates, and there will continue to be a frenzy in the Ottawa market.”

Read more: Ottawa housing market dynamics now at the mercy of supply

The affordability issue that’s besieging the country’s hottest markets is one that’s also crept into the capital, Allard said, with brokers commonly fielding calls from would-be borrowers about how they might qualify for a larger mortgage.

That crisis has seen the so-called “Bank of Mom and Dad” grow in influence, as many first-time buyers turn to parents or other relatives to help afford the often prohibitively high cost of a down payment.

“The reality is with the average home price in Ottawa having gone up quite drastically over the last few years, we’re seeing a lot of people only qualify for certain loan amounts, and the only way to buy is by getting a larger down payment – and Mom and Dad have to come in and help in those instances,” Allard explained.

“If you’re a single-income earner – unless you’re very high-income, the chances are you probably don’t qualify on your own unless you’ve got a very healthy down payment. So I think it’s a frustrating marketplace for a lot of single-income earners, there’s no doubt about that.”

Ottawa has hit national and international headlines in recent weeks for the virtual shutdown on its downtown core as a result of protests against COVID-19 vaccine mandates for truckers.

In terms of the city’s real estate and mortgage markets, those blockades have had precious little impact, Allard said, with only the city centre, and clients who are interested in purchasing downtown condos, affected by the developments.

Read more: Canada's housing supply crisis – how bad is it?

Meanwhile, with interest rate hikes seemingly on the horizon in the near future, Allard said many variable-rate clients have been seeking advice on whether to lock in on a fixed mortgage rate. Like many brokers, though, he’s advising those customers to stay the course with variable – particularly with any Bank of Canada rate increases in the future likely to be somewhat mild.

“We’re getting a lot of calls and emails from our existing clients saying, ‘We expect rates to rise. Should we be switching to a fixed rate mortgage?’ For most of these borrowers, the answer should be ‘no’,” he said.

“Everyone’s got a different situation and they’re all educated individually, but for the most part we’re advising [them] to stay with the status quo on your variable rate mortgage, even though the rates are rising.”

Clients seeking a preapproval are increasingly concerned with having a rate hold in place, Allard said, a trend that mortgage professionals need to keep in mind moving forward in 2022.

“Preapprovals are going to be very important for borrowers but also for brokers in terms of ensuring that we can keep that business,” he said, “because if we can get borrowers preapproved today, it’s likely that those rates will be gone by the time they buy a house.

“That means that we end up being able to fund that mortgage, so it’s very important for brokers to retain that business.”