First, I would like to wish everyone a Happy & Healthy New Year!

Let’s just say 2023 was an interesting year for real estate – with unexpected upward price momentum early in 2023, followed by the last half of the year where we saw inventory of unsold homes grow significantly, actual sales activity decrease to record low levels, and any early price gains were erased. 

So, what will 2024 bring? Consensus is interest rates will trend downward in 2024 – which is a good thing. There are differing opinions on when the Bank of Canada will start dropping the bank rate, some thinking as early as April 2024, others not until the end of the second quarter of the year.

But the decrease will be gradual – and we are not returning to 2% mortgage rates. If rates start to decrease at an even quicker rate – it means the economy is going into a worse than expected recession – not a good thing.

Long term mortgage rates have already started to decrease – as these rates are based on what is happening in the bond market, not the Bank of Canada rate – which affects short term/ variable rate mortgages. We will be looking at long-term rates under 5%.  

There are 2 aspects I want to touch on – buyer psychology and affordability. Without a doubt, the fact we are now talking about when rates will go down, as opposed to up, will positively affect buyer psychology.

Over the last couple of months – as one well-known economist referenced – we are in a real estate buyer’s market (lots of inventory to buy AND lower prices) where there are no buyers. Which means buyer psychology has not been great; the rate decrease talk will slowly lead to increased buyer confidence and activity in the marketplace.

But that is not enough – because there is something called AFFORDABILITY. Rates may go down a percentage point over the next year, but the reality is rates must go down 3% to restore some sense of affordability for the average buyer out there. Or a combination of interest rate decreases, further real estate price decreases – or meaningful increases in buyer incomes.

Rates are not going down 3% this year and most buyer incomes probably are not suddenly going up much. So that leaves prices. In other words, in the short term, there will continue to be downward price pressure in the marketplace.

In Centre Wellington, do I foresee higher sales activity in 2024 compared to 2023? Yes. There are many people who put off selling their home in 2023, there are others that will have to sell in 2024 and there are many who have been putting off buying a new home.

With improved buyer psychology, all this points to higher activity in 2024. Lower rates will help. People downsizing and multi-generational living are two increasing trends to watch. Predicting where prices are going is a bit trickier. One national real estate firm says prices will go up 5.5% nationally in 2024.

Remember real estate is local – and some markets may in fact go up 5.5%. Others may continue to go down. And there are micro-markets within markets that could behave differently. While I am predicting higher activity in our local market, I am certainly not predicting upward pressure on pricing. But the local market WILL be a healthier real estate market in 2024 compared to the last half of 2023.

January will be slower, but as we enter the prime Spring market (March, April, May, June) sales activity will pick up across all price points and housing segments. Condo sales were very slow in the fourth quarter of 2023, as were home sales in the $1.3+ million category. I see activity improving noticeably in both these segments as we progress through 2024.

As a quick aside – I know I have said it before – but we don’t have enough housing in Centre Wellington that is affordable for first-time buyers (certainly not at current interest rates). And first-time buyers drive the market. So, there will still be several buyers sitting on the sidelines until affordability improves.

For the long-term health of our community, this has to change. All levels of government – including the municipality – and builders themselves – must work together to come up with some creative options.

How high inventory levels (homes for sale) spike in the Spring could have an impact on pricing in our market – and in our unpredictable world – geopolitical issues can always have impacts we didn’t see coming.

But as I write this article, despite a challenging 2023 market, based on what I currently see on the ground – and feel in my gut – I enter 2024 more optimistic than I have been in a while. And that’s a good thing.

Until next month…

George