Challenging days are ahead in the local real estate market as continuing high interest rates impact affordability. While some realtors thought we were simply off to a slow start for the Fall market, it is becoming increasingly clear that there is going to be lower sales activity throughout our Fall market this year.
Now, to keep things in perspective, last Fall’s market was slower too. However, there are two big differences this time around; much higher interest rates and inventory of homes for sale that is 60% higher than last year (and I would also say there is more uncertainty & negative sentiment in the current market).
Many buyers have gone to the sidelines simply because they cannot qualify for mortgages at current rates. Others that can afford to buy are taking a wait and see approach (waiting for interest rates – and/or prices – to go down).
Some buyers are throwing in low ball offers; but it seems most sellers are playing a waiting game too and not adjusting prices too drastically. So, we again have a standoff between buyers and sellers. Thus, lower sales activity. But let me be clear; if rates aren’t going down soon (and by all indications they are NOT)… prices WILL start coming down more.
There will be sellers that HAVE to sell that will lead the downward pricing trend. Locally, we are now approaching the technical measurement of what we call a “buyer’s market”, which is 6 months of inventory (i.e., if no more homes hit the market, it will take 6 months for the current inventory to sell based on current sales activity). Which is somewhat of a funny term since there aren’t many buyers actually buying at the moment.
Buyers tend to wait for prices to go even lower, but most wait too long, and the market is already going back up again by the time they buy. For now, there is clearly downward pressure on pricing. Again – keep in mind – if you are selling and buying in the same market – things are relative.
Pricing bottomed out from the previous crazy highs by December 2022, and then we saw a bit of a rebound in pricing in the first 5 months of 2023. Since May 2023, pricing in our market stagnated – and is now starting to decline.
For early 2024, I can safely say most are not predicting a rebound. Some are predicting a stagnant market, some predicting declines somewhere in the 10% range, and others predicting a more significant correction if rates do not start coming down by mid – 2024.
It will be largely market specific (i.e., CW vs Guelph vs KW) – even property type specific. Of course, there will always be those places that sell for top price that we call “unicorns” – homes that tend to sell in any kind of market. But until interest rates come down, it will indeed be a challenging market.
While I reiterate I am not one of those “doomsday” predictors, I am very concerned for those homeowners with larger mortgages that are coming up for renewal over the next year if rates stay elevated. Monthly payments will increase significantly. There will be more distressed selling situations.
Sellers having to sell is one of the reasons I am predicting higher sales activity in 2024 over 2023, especially in the last half of the year. There is always a flipside to these scenarios. There will be more value buying opportunities. Cash will again be king.
Cash buyers/investors will re-enter the market. To quote Warren Buffett: “Be fearful when others are greedy and be greedy only when others are fearful.”
For first time buyers, it really is a waiting game. Either interest rates have to come down – or prices have to come down. Or both. But don’t try to time the market. Buy when it is affordable for you – and keep in mind real estate is a long-term investment.
Similar advice goes for sellers. Is it a great time to sell? Not for most (but remember my comment above – all things are relative.) Will Spring 2024 be better? Probably not – in fact pricing could continue to drop significantly – but the truth is no one really knows.
My advice as always to sellers – sell when you are ready and when it makes sense for you. Do not try to time the market.
Despite the current “gloominess” in the real estate market – properties are still selling and there are still buyers out there (albeit fewer at the moment ) – but most importantly, real estate remains a great long term investment.
Until next month,
Take care,
George
