2023 Canadian Spring Housing Market – Few Listings, More Competition & Big Mortgages

Home search and buying competition is gaining momentum across the country as residential real estate market typically comes back to life in Spring.

Hopeful home buyers had mostly stopped their searches through the second half of last year in anticipation and uncertainty as residential real estate prices declined across the country following interest rate increases by the Bank of Canada.

Some were hoping for further price drops, while some others were anticipating a housing crash, which did not happen. Thankfully the rate increases did not translate into major job losses. With dimming fears of recession, people are keen on home buying again.

Even after a year of rate hikes, housing affordability is at record low, with heftier mortgages mitigating the effect of lower home prices. This is further making homebuyers restless.

The flip side of the coin is that home sellers are not willing to sell at a time of lower prices, resulting in fewer listings. The end result is that some buyers are trying hard to secure whatever they can afford in their desired market.

This Spring is unlikely to witness feverish price bidding wars

Despite the rush, buyers are more cautious about making offers above asking or waiving home inspections etc. Demand from real estate investors and out of town or province buyers has reduced in some markets. For example, in 2021 and early 2022, buyers from Toronto flocked to suburbs and smaller towns looking for bigger homes and lower prices, adding to competition in markets such as London, Ontario. But now that home prices have plunged by 10-30% in most suburbs, local residents of those areas are finding this a good chance to get into real estate buying.

But of course multiple offers are coming back due to shortage of listings. Buyers need to act fast as prices are on the rise once again.

2023 Spring Housing Market Outlook – Impact of Interest Rate Hikes

After eight interest rate increases, the Bank of Canada indicated at the start of 2023 that it would hold off on further hikes. This coupled with some stability in home prices as well as the onset of Spring, is bringing buyers back into the market.

Buyers are adapting to higher mortgage rates

People are adjusting by looking for smaller properties, or even in less desirable neighbourhoods.

However, home prices remain far higher than they were before the pandemic, even in markets that had sharp declines last year.

In London, real estate prices in January were down 27% compared to their pandemic peak of February, 2022. Yet a typical home still costs 60% more than it did in January, 2019.

For buyers who need a mortgage, higher borrowing costs have significantly removed the benefit of lower home prices.

In Toronto, buyers with a competitive five-year fixed mortgage rate, a 20% down payment and 25-year amortization would have seen their mortgage payment shrink by around $50 a month, if they had bought in January compared to the market peak.

Another challenge for buyers is the federal mortgage stress test, which mandates that lenders must test the borrower’s finances to ensure that they would be able to afford the interest rate increases.

When it comes to qualifying for a mortgage, higher interest rates have reduced the amount which home buyers can borrow from federally regulated lenders.

Current rules require lenders to ensure that mortgage applicants would be able to keep making payments based on the higher of a minimum qualifying mortgage rate of 5.25%, or their contract rate plus two percentage points.

With mortgage rates now hovering around 5%, borrowers must pass the test based on a qualifying rate of around 7%. This means they can borrow significantly less.

One of the growing trends is that hopeful buyers are seeking help from their families to buy a home. This has been a common practice in Ontario and B.C. for years, and now also in Halifax.

Shortage of For Sale Listings

Another challenge is that home sellers are in no rush to sell their properties. Some homeowners who saw the record price increases of the last two years are wary of the current market and declining home prices.

And then others who want to sell to move into bigger properties are not putting up their current homes for sale because they can’t qualify for the mortgage they need to upsize into a larger home.

While the home buying frenzy is not the same as it was during the pandemic, lack of housing inventory is heating up competition among prospective buyers.

Buyers are placing a variety of conditions on their offers.

During the pandemic buying frenzy, home buyers were going in with no conditions, just to secure a home. This time around, home buyers have the luxury of adding conditions. In fact, it is prudent for prospective buyers to make their offers conditional on their ability to secure financing and also on their lender conducting an appraisal within that financing condition period.

This is important because if the appraised value is below the contractual purchase price, the lender will offer a smaller mortgage, leaving the buyer in a tough spot. If they can’t cover the shortfall between the mortgage and that price, the deal doesn’t close. The buyer may lose their deposit.

Making an offer that includes a clause about the appraisal allows the buyer to walk away during the conditional period.

Home inspection clause is another important safeguard for buyers to avoid any unexpected expenditures on fixing up a home post purchase.

Here is a look at some average home prices in Mississauga over the past couple of years

2023 Spring Housing Market Outlook – Spotlight on Mississauga

Our market is improving everyday and our prices are on their way up. It took almost two to three years for prices to surpass their peak when there was a market crash in 2017. And it looks like it can take us another two to three years this time again.

If you are looking to buy and sell in today’s market, we will be delighted to help you make an informed decision.

Contact Team Kalia to Buy or Sell Your Mississauga & Area Property