Less than a year after purchasing their four-bedroom townhouse in Surrey, BC for $870,000, Anesh Bhandari and his wife decided to sell their home in early May.
Both looked forward to their first open house, Bhandari said, placing bets on how many showings the home would get. They later discovered that only one person had come to view the property.
“It was an eye-opener,” Bhandari told CTVNews.ca in a phone interview Thursday. “My broker didn’t expect this, nobody expected this.”
Bhandari and his wife plan to move from British Columbia to Ontario to be closer to his employer’s office in Mississauga. But the process of selling their current home and buying a new one has been difficult, the 36-year-old said.
After 30 days on the market, the 167-square-foot house, listed for $1.15 million, still hasn’t sold, even though it’s listed for $50,000 below similar homes in the area, Bhandari said. In mid-June, he took the home off the market.
“At that point, sellers were expecting yesterday’s price and buyers wanted tomorrow’s,” Bhandari said.
After getting an extension from her employer to work from home until December, Bhandari plans to re-list her home in October in an attempt to sell before the end of the year.
Bhandari is one of several Canadians who wrote to CTVNews.ca about the impact Canada’s housing correction is having on their decisions to buy or sell a home. After a series of interest rate hikes introduced by the Bank of Canada, housing markets are now facing a correction that is “spanning the length and breadth” of the country, according to a new report from the Royal Bank of Canada (RBC).
A decline in home prices, combined with weaker resale activity, indicates that Canada’s housing markets are already cooling. According to RBC’s forecast, median home prices in Canada are expected to decline through the rest of 2022, eventually falling 12 percent by mid-2023 from their peak in February.
“[This] it’s going to rank as a very significant correction,” Robert Hogue, assistant chief economist at RBC, told CTVNews.ca in a phone interview Wednesday. “We rarely see this type of double-digit price drop on a national basis.”
Rising interest rates have played a key role in correcting some of the extraordinary gains in home prices that Canadians have seen during the pandemic, said James Laird, co-CEO of Ratehub.ca.
“The last few years have been irrational, and some rationality in correcting that exuberance is happening right now,” Laird told CTVNews.ca in a phone interview Wednesday. “Given the red-hot pace of the last two and a half years, it makes sense to take a breather now.”
After reaching a record high of $816,720 in February, the national median home price has been on a steady decline, according to data from the Canadian Real Estate Association (CREA). The average price of a home in Canada for the month of June was $665,849 without seasonal adjustments.
The lack of certainty about what to expect from the Bank of Canada in terms of further rate hikes may also encourage some Canadians to sit out the market, Laird said.
“Because the central bank is still in a transition period from pandemic interest rate policy … to post-pandemic inflation policy, we don’t know exactly where the bank wants to go,” Laird said.
In the face of a changing market driven by shrinking home prices, Hogue said current sellers need to be pragmatic and recognize the market is much different than it was just a few months ago.
“Prices are likely to continue to decline in the coming months, so the market is unlikely to become more seller-friendly in the short term,” Hogue said. “Buyers are coming into the market with a smaller budget… They have tighter constraints as far as [how much they can afford].”
TORONTO, VANCOUVER ZONES MORE BALANCED
According to the RBC report, the major housing markets in Ontario and British Columbia are expected to see some of the hardest corrections compared to other regions in Canada. The reason for this lies in the extremely high housing prices that have characterized these areas for most of the COVID-19 pandemic. Hogue said those areas are therefore more sensitive to rising interest rates.
According to data compiled by CREA, median home prices in Ontario and British Columbia peaked in February at $1,086,493 and $1,104,098, respectively. Both figures are not seasonally adjusted.
Since then, activity has fallen to its slowest pace in more than 13 years – excluding pandemic lockdowns. That leaves room for more negotiation between buyers and sellers as the market balances out, said Frank Clayton, an economist and senior fellow at Toronto Metropolitan University.
“[Buyers] they have to keep their eyes open because … there are always people who have to sell,” he told CTVNews.ca in a phone interview Wednesday. “Some people won’t want to wait six or eight weeks and hope their house sells, they might want the money straight away.”
While it may not yet be a buyer’s market in parts of Southern Ontario, Clayton said, the markets are looking more balanced. This is also the case in the Greater Vancouver area, according to the RBC report. Housing activity in the region has fallen 40% over the past four months, and home prices for all housing types have also fallen 4.5% since April.
It’s also important to understand that some areas of these regions will feel the effects of a correction differently than others, Laird said.
“[Prices in] suburbs and more rural properties have appreciated the most in the two years of the pandemic…and those are the places [where] prices adjust the most,” Laird said. “[But] urban cores did not rise nearly as much as the surrounding suburbs [so] they don’t correct as much either.
HOMES STILL ‘LESS AFFORDABLE’ SAYS REAL ESTATE EXPERT
A real estate forecast from Desjardins also indicated that New Brunswick, Nova Scotia and Prince Edward Island face significant adjustments after home prices rose during the pandemic.
However, parts of Alberta are expected to be more resilient. Despite the drop in prices, the correction in this part of Canada is expected to be milder than others, Hogue said.
While median home prices may have fallen on a national basis, that doesn’t mean houses have become more affordable for Canadians, Laird said.
Lower home prices are due to higher interest rates forcing homeowners to pay more interest on their mortgages. With a higher cost of borrowing, those looking to buy a home will likely qualify for a smaller mortgage as a result, Hogue said. This makes it especially difficult for home buyers looking to enter the housing market for the first time.
Taylor Wright and her fiancé are currently renting a one-bedroom apartment while they look for a new home. Looking to buy in Ajax, Ont. or Whitby, Ont., on an $800,000 budget, Wright said she and her fiance are staying out of the market.
“Every house we’re looking at is still going for close to $100,000 over asking price and we don’t want to get into a bidding war and overpay for a home,” Wright wrote in an email to CTVNews.ca on Thursday.
After monitoring the province’s housing market since the start of the pandemic, Wright said she’s seen home prices “get higher and higher out of reach.” Still, she said rising interest rates and cooling prices give her hope that she might be able to buy a home in six months.
Diordan Svelander and his wife are looking to purchase a home in the Greater Vancouver area. With housing prices extremely high, he said they can’t afford a down payment on a home despite working two full-time jobs.
Svelander said he and his family tried to search north of the city, in the municipality of Chetwynd, British Columbia. The couple had their eyes on a house, but with interest rates rising over the year, they could no longer afford it.
“The money we had saved was not enough to withstand the stress tests and we had exhausted all our options trying to buy,” Svelander wrote in an email to CTVNews.ca on Wednesday.
As a result, the couple now rents a two-bedroom apartment with their two young children and pets, Svelander said.
A recent report by Ratehub.ca estimated the income needed to buy the average home in various Canadian cities. So far, financial losses from higher interest rates have not been offset by gains from lower home prices, Laird said. In all Canadian cities included in the report, residents need more income on average to afford a typical home.
“You had a better chance of buying a home a year ago with these high prices but lower mortgage rates … than with more modest home prices but higher mortgage rates,” Laird said. “It basically means that everything is less affordable than it used to be.”
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