An investor exodus means a more normalized market is in store for the years ahead, according to a veteran broker
At the height of the COVID-19 pandemic, Canadians flooded the housing market as cheap loans, pent-up savings and a desire for bigger living space created a perfect storm for homebuying.
That heralded an unprecedented housing boom marked by fierce bidding wars, properties selling for far higher than the asking price, and sky-high year-over-year growth in sales.
But as inflation spiralled out of control in 2022, the Bank of Canada tapped the brakes on that buying surge through a series of aggressive interest rate hikes – and today’s market is strikingly different to those halcyon days for the mortgage industry.
A deep freeze has set in across major Canadian housing markets as affordability challenges and economic uncertainty pushed buyers away and saw sales activity plunge.
That reality doesn’t seem to be changing anytime soon. The Canadian Real Estate Association (CREA) revealed this week that prices and sales fell yet again in February, and would-be homebuyers don’t appear convinced that now is the right time to make their move.
The result is a huge shift in Canada’s housing market since 2022: while previously, buyers rushed to purchase primary and investment properties through the FOMO effect (fear of missing out), now virtually the only people purchasing are those who have to move.
That means some of the dysfunction of the early-2020s market has vanished. “I believe there are certain segments of the market that can weather the storm better than others,” Joe Sammut (pictured top), broker-owner at Mortgage Architects – A Better Way, told Canadian Mortgage Professional.
“But the consumer confidence to go out there and buy because they want to buy – that’s gone. Those days of FOMO are over. Now you’re buying because you have to have somewhere to live. We’re going back to the marketplace from 25-30 years ago when you bought because you needed an extra room, because you had an extra child or you sold because your kids moved out and you downsized.”
Many first-time buyers who saw themselves frozen out of the housing market because of skyrocketing prices and exorbitant rents making it more difficult to save for a downpayment will cheer that development.
Investors have abandoned the market in droves in the current choppy environment, giving end users more options and less competition from buyers who don’t intend to live in the properties they purchase.
“I don’t believe the speculation market is there. It’s just not affordable anymore,” Sammut said. “You can’t get a good cap rate on an investment property to speculate.”
Current homebuyers doing their research before taking the plunge
Another factor at play in the current market: those who are in a position to buy are more qualified than ever, according to Sammut, because they’ve been planning to purchase for a long time and have done their research on what they need to do to make the right move.
The problem is that there aren’t enough of them currently active. “They’re a better-quality buyer today,” Sammut said, “but they’re few and far between. In the market going forward, I think we’re in for at least another two years of this.”
Those two years aren’t expected to see the market nosedive, and some regions are projected to fare better than others in weathering the storm.
Still, homebuying doesn’t look set to turn the corner anytime soon, especially if that economic unease lingers and interest rates stay roughly where they are.
The rock-bottom rate environment isn’t coming back soon
The Bank of Canada kept its policy rate unchanged on Wednesday, holding steady at 2.25%, and financial markets increasingly view a 2026 hike as possible amid concerns about an inflation uptick linked to the ongoing conflict in the Middle East.
With no return to the record-low-rate environment of the pandemic imminent, Sammut said that suggests a more balanced market is likely to prevail even when things turn a corner.
“I think we’re going to go back to a normalized ‘I’m buying because I have to buy, not just because I want to buy’ market,” he said. “I think interest rates this year will be stable or slightly higher. I don’t think they’re going down.
“And I think it really comes down to hitting the bank at the right time. So I think the consumer is going to be a lot more in the know going forward than they [have been].”
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