Early Spring 2023 Market Report: Waterloo Region
A stabilizing market…
Residential real estate prices in Waterloo Region have largely stabilized from rapidly rising interest rates. Since July of 2022, the average residential sale price has been hovering around a median price of 710k. What has not changed is the reluctance of either Buyers or Sellers to enter into the market. Sales volume have been well below historical averages, paired with chronically low listing inventory. But signs are emerging that could be changing.
Interest rates to hold - Perhaps lower?
Economists often cite the principle that interest rate hikes can take up to a year and a half to be felt. Early in 2023, analysts were predicting a soft landing for the economy and pointing to resilient job growth and persistent inflation; it remained to be seen if interest rates would rise even further. However, February’s 5.2% CPI inflation reading was lower than expected. Furthermore, the central bank of Canada’s most recent guidance at their March 8th rate announcement was that further rate hikes would be put on hold for the time being while the state of the economy is further assessed.
Fast forward to the end of March and there is also an emerging concern with the strength of the financial sector. Higher interest rates have made loans more expensive and less attractive, profits are down and in the case of some banks, securities purchased to offset other loans have become less valuable. It seems the equity markets feel large financial institutions became reliant on easy access to capital throughout the pandemic. Investors are wary of banks that do not have adequate coverage. There is also an emerging concern that many commercial mortgages are becoming a liability for lenders as the pandemic has reshaped office culture entirely with work-from-home measures.
OK - but what does that all mean for the housing market?
At the very least, Buyers can make purchases with a positive sense of direction on interest rates in the short term. Some analysts are predicting the central bank and federal reserve may have to ease access to liquidity for banks earlier than expected, in other words, lower interest rates. If the bite of all those previous successive rate hikes has finally begun to take hold and a recession does loom, lower interest rates may well be around the corner. This will increase purchasing power for Buyers and may restore some of the affordability lost in the fight against inflation. However, more Buyers equals more sales volume and if there are not enough listings - price gains.
Sellers are also generally Buyers and interest rates haven’t been helpful for either side of the transaction. We often hear the question, “If I sell my house, where will I go?” And that’s an absolutely valid point. The most affordable home these days, tends to be the one you already own. However, there are also times in life when affordability is not the number one priority.