Things are changing in Canada’s real estate landscape.
After a scorching year for real estate in 2021—a time when home prices smashed records and sales volume rose above the norm—there appears to be a slowdown in the marketplace.
According to the latest numbers from the Canadian Real Estate Association (CREA), home sales recorded over Canadian MLS® Systems dropped 5.6% between May and June 2022. 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, Hamilton, and Burlington to name a few.
The shift in the marketplace from a hot seller’s market to a balanced or more buyer-friendly one can feel uncertain, especially for people in the process of listing their property.
We asked REALTORS® across Canada about how the market performed pre-pandemic, why it’s changing now, and what home sellers can do to prepare.
Where has the market been before?
A seller’s market occurs when there are more buyers than homes on the market, leading to more competition and higher prices. On the flip side, a buyer’s market takes place when there are more homes compared to purchasers, and prices tend to be lower due to increased supply. A balanced market is somewhere between the two.
Toronto and Vancouver were recently in a notable seller’s market, a trend that only accelerated during 2020 and 2021 as buyers reevaluated their needs during the pandemic and sought out new living quarters.
“Right before the pandemic, I would say we were a little more balanced. I think due to the pandemic, the seller’s market was abnormally strong. There was just an intrinsic need for more space at home,” said Alex Yao, a broker and REALTOR® with RE/MAX Select Properties in Vancouver, British Columbia. “[For] everyone, their lifestyles were completely changed; spending more time at home, working from home, kids not going to school and [therefore] needing the space.”
Image via PexelsThis hasn’t been the case for every market in Canada. In Calgary, the transition into a seller’s market has been more recent. Jared Chamberlain, broker and co-owner of Chamberlain Real Estate Group, said a seller’s market didn’t start to emerge in the city until mid-2020 and fully surfaced in 2022, a pattern that formedas out-of-town buyers relocated to Calgary during the pandemic and existing residents upsized their homes.
“What happened in 2020 and 2021 is we saw some increases in prices. We saw some multiple offers coming together, things happening that way,” explained Chamberlain. “But when we turned into 2022, something just took off and there was a lot of out-of-town interest, more than what we saw [before].”
Only recently, Chamberlain says Calgary has been flirting with a balanced market in areas outside of the downcore core, such as Airdrie, Cochrane, and Okotoks—most of the city is still in a seller’s market. Meanwhile, the transition to more balanced and buyer market conditions occurred in Vancouver and Toronto started earlier this year.
Why is the market changing, and what does it look like these days?
In terms of why Canadian real estate markets are changing, it comes down to multiple factors.
The most obvious reason would be a rise in interest rates, which have been increasing since the Bank of Canada announced its first hike to its target for the overnight rate in March 2022. In July, the Bank moved up the target rate by one whole percentage point to 2.5%. This increase has forced buyers to qualify for a mortgage at a higher rate.
In some cases, higher interest rates have limited buyer purchasing power. Tirajeh Mazaheri, a REALTOR® in Vancouver with Coldwell Banker Prestige Realty, explained some purchasers who wanted to buy in early 2022 held back on buying in hopes the market would cool. However, their purchasing power has since reduced as monthly mortgage payments grow with rising interest rates.
“It’s shifted more. The buyers [who] can make those payments, they’re going out and have more negotiation power,” said Mazaheri. “But at the same time, there are a lot of properties just sitting on the market because those same buyers who were wanting to buy before, can’t buy anymore.”
The sales-to-new listings ratio pulled back to 51.7% in June—the lowest level since January 2015. In its report, CREA noted about 75% of local markets were now balanced, and a handful of others are in buyer’s market territory.
Higher rates have affected some segments of the market differently. According to Davelle Morrison, a Toronto-based broker with Bosley Real Estate Ltd., condos, which tend to be less expensive than single-family homes, have been faring better than their detached counterparts.
“Once you look at your actual mortgage payment, people are starting to go, ‘You know what? I still need to live my life. I don’t want to be house poor,” explained Morrison. “As interest rates increase, it’s stopping people from spending more and more money on houses because houses are far more expensive than a condo.”
Seasonality is another element at play. In a normal real estate cycle, the summertime leads to a slower market as people go on vacation and travel. Families tend to plan their home purchases around the school year, prompting them to buy in the spring and move during the summer when school is out. In 2022, this pattern has been amplified by the effects of the pandemic as households take advantage of a more normal summer after two years of COVID-19 restrictions.
Another contributing factor, Yao explains, is that many families already made their move during the last 18 months while demand for more space was high—the need for extra living space has been fulfilled over the last year and a half by the majority of buyers.
“I think there’s a lot of factors that kind of created a perfect storm for sellers,” said Yao.
How can home sellers navigate the current market?
With the market different from where it was a year ago, home sellers may need to adjust their expectations. With fewer offers and showings to go around, strategies that worked to sell a home in 2021 may no longer be the right fit.
“It may take a little longer. You may have to concede to some of the buyer’s needs and wants, and negotiate,” said Yao. “A year ago if you were trying to sell, you didn’t need to try and negotiate; there were 20 offers for you to choose from. Right now, negotiation becomes key and bringing in offers becomes key. They won’t just fall in your lap anymore.”
The key marketing rules of selling a home still apply: taking good photos, improving your property’s curb appeal, and making the best first impression of to buyers with good staging. Mazaheri explains in a cooler market, marketing is crucial for generating a buzz about the property that will draw in purchasers and their offers.
Chamberlain says you typically need to sell your home three times—online, during a drive by of the property, and during the showing. While you can’t control the surroundings of your home, it’s important to be upfront with your marketing, even if there are things about the home the seller may feel will be a turnoff for buyers.
“Whenever you’re moving from a seller’s market where it feels like anything will sell, to a buyer’s market where there’s more competition, the more truthful you are in your marketing and being realistic in the expectations of what the buyer is going to see when they see the property, that’s definitely going to help you actually sell your property,” said Chamberlain.
Sellers also need to be prepared for change during the process. Morrison explains they may experience fewer showings and offers these days, and should be prepared to drop their price if needed.
“You might say to them, ‘OK, you know what? Sure, today we’ll list your place for $1.1 million, but if we don’t have any activity off of showings in the next 10 days to two weeks, we’re going to need to reconsider the price and go down to $1 million,’” said Morrison.
Courtesy: realtor.ca
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If you ask me, Canada's real estate landscape is just out of this world. I think there isn't any other landscaping that even comes close.
Posted by Greg Mover on Monday, February 6th, 2023 at 8:47amLeave A Comment