Dear David,
We started the search for our first home in late 2021, with good jobs and enough saved for a down payment. We shopped for a few months and found several homes we liked, but our pre-approval was knocked down by rising interest rates. When skyrocketing property values started making the daily news, we lost confidence in the market and gave up on our search. Now we would like to try again. What do you think the market is going to do in the next six months to a year? – FEELING NERVOUS
DEAR NERVOUS: It sounds like you may have dodged a bullet, since you were shopping for a home in one of the most volatile and challenging markets we’ve seen in recent decades. Back in 2022, real estate in Canada managed to shatter every high price record in history, in spite of the pandemic and supply chain disruptions.
The market peaked in February 2022, when residential properties in Waterloo Region reached an average sale price of just over $1 million. In an aggressive attempt to keep inflation under control, the Central Bank of Canada raised interest rates ten times between the Spring of 2022 and Summer of 2023. The benchmark interest rate shot up from 0.25 per cent to 5 percent in the span of 16 months, and real estate prices fell.
By the time the market bottomed out at the end of 2022, our average local sale price had sunk into the low $700 thousand range. I remember seeing an editorial cartoon around that time which summed the situation up perfectly: a seller asked a real estate agent what his home was worth, to which the agent replied, “less than it was worth yesterday”. It was brutal.
Since then, the real estate world has seen many changes, including the introduction of the Trust in Real Estate Services Act (TRESA, 2023), which re-defines the rules that govern how Realtors and consumers interact. At long last, interest rates have started to drop, inflation is in check (at least in theory), and prices have stabilized somewhat following the “free fall” we experienced in 2022.
From here, hold tight to the lessons you learned during your brief real estate journey as you start anew. Reconnect with your Realtor and spend some time getting comfortable with what the market is doing. Get a fresh pre-approval, keeping in mind we’ll likely see a few interest rate drops in the next year or two. Personally, I’d avoid signing a long-term mortgage right now.
PRO TIP: If I had a crystal ball, I might expect to see a tipping point in the near future where interest rates have continued to drop and prices haven’t yet started to rise. This could be a sweet spot for buyers (and given the continued housing shortage in Canada, it’s not hard to see where things could go in the next few years). If you’re ready to buy, keep an eye on the market. Get up to speed with your Realtor and mortgage specialist, and you’ll be poised to achieve the best possible outcome. #Advice #AskDavid #TheNegotiator
David is a top-selling Broker in Kitchener-Waterloo Region. He works personally with you when selling or buying your home. Call or text today for your free home evaluation! 519-577-1212.
