Has the pendulum in the Canadian housing market tilted toward homebuyers? This is the current debate unfolding among market analysts, real estate agents, homebuyers and sellers.
The research arm of Goldman Sachs recently dropped a bombshell of a forecast: Canadian real estate will witness the sharpest drop in the global economic downturn.
“The pandemic-induced housing boom appears to be cooling off,” the Wall Street titan wrote. “From Toronto to Auckland, a slowdown in the housing market is underway as interest rates in developed economies are set to climb rapidly.”
Indeed, it is a reasonable conversation to have after seeing some of the latest numbers being reported in the Canadian housing market, as the central bank raises interest rates to combat soaring price inflation.
According to the Canadian Real Estate Association (CREA), national home sales tumbled 5.6 per cent month-over-month in June, and prices slipped 1.8 per cent. What’s more, association data show that sales were down in three-quarters of all local markets, led by Canada’s biggest cities – the Greater Toronto Area (GTA), Greater Vancouver, Calgary, Edmonton, Ottawa and Hamilton-Burlington.
“Sales activity continues to slow in the face of rising interest rates and uncertainty,” said Jill Oudil, Chair of CREA. “The cost of borrowing has overtaken supply as the dominant factor affecting housing markets at the moment, but the supply issue has not gone away. While some people may choose to wait on the sidelines as the dust settles in the wake of recent rate hikes, others will still engage in the market in these challenging times.”
Suffice it to say; the frenzy might be over, meaning that buyers could be in control of the market. If so, this could also suggest that the bidding wars that have been prevalent even in the suburbs since the start of the coronavirus pandemic could be winding down.
But how can you even make an offer in this type of environment? Let’s explore the various mechanisms.
Bidding War No More? How To Make an Offer in Cooling Canadian Housing Market
At the height of the sizzling pandemic-era housing market, multiple hopeful homebuyers would submit bids well over asking price. Coupled with a shortage of listings, this over-bidding created a domino effect whereby many other homes listed for sale would go for well over value, thus impacting housing affordability.
While this may still be the norm in some major urban centres, it might be starting to ease in Canada’s small markets. Still, it is critical to devise a strategy when bidding on a home you want to purchase.
You may need to first realize that you can place conditions on the table again. You no longer need to worry about foregoing critical components like home inspections – an omission that could have a detrimental outcome for the buyer. Instead, since housing demand seems to be cooling, prospective homebuyers are somewhat in control again. As a result, they can place terms and conditions on an offer to purchase. Or, at the very least, negotiate better terms.
Market experts say that they are beginning to see things like escape clauses and financing come into play in an agreement, once a conditional deal is accepted. That said, it is imperative that you continue the most important step of them all: home inspections! This was abandoned throughout the housing boom because prospective owners were desperate to buy.
Remember, it is also important to be reasonable and compromise, since it is better to have both parties satisfied in the arrangement. Otherwise, be prepared to walk away from the offer table.
Of course, this can only be accomplished by understanding how the market is performing. Unfortunately, too many people, especially recent homebuyers, believe the real estate sector can only move in one direction: up. But this is evidently not the case, so do your research and due diligence, and be sure to equip yourself with the knowledge of what is presently transpiring.
Another critical factor to everything in this process is having a real estate agent by your side, from the moment you have received a pre-approved mortgage to the time you sign a contract. Real estate agents can help negotiate your purchase, find the best listings in your neighbourhood, and ensure you get the best deal possible.
“Inventories are finally beginning to rebuild from record lows just a few months ago, although we still have major supply shortages almost everywhere,” said Jill Oudil, Chair of CREA, in a statement. “With all that being said, we are in a period of rapid change, but one that should settle to a more balanced housing market in time. As conditions continue to evolve, contact your local REALTOR® for information and the guidance you will need buying or selling in this current environment.”
Bidding wars may be going extinct in parts of this country, or at least subsiding. Either way, it is best to be prepared and confident heading into the biggest purchasing decision of your lifetime.
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