Sales activity has slowed significantly in Ottawa’s real estate market as widespread uncertainty in the nation’s capital affects everything from single-family homes to condos.
Industry experts say many potential home buyers are sitting on the sidelines due to uncertainty about current economic conditions. While the higher cost of living is a major factor in today’s economy, homebuyers are also unsure whether they have enough purchasing power in the face of rising interest rates, according to Penny Torontow, president of the Ottawa Real Estate Board (OREB).
The Bank of Canada (BoC) recently hiked interest rates by 75 basis points at the latest monetary policy meeting. But while the country’s annual inflation rate cooled to 7 percent in August, policymakers have insisted they will tighten further until inflation falls back to their target rate of 2 percent.
In the meantime, this could wreak havoc on the Canadian real estate market. But prices remain high while demand in Ottawa’s housing sector slows. In fact, the typical selling price is above the market average.
Ottawa’s real estate market defies the storm clouds
New OREB data shows that the median selling price for a residential class property rose five percent annually in August to a total of $707,712. The median selling price for a condominium property increased four percent year over year to just under $422,000.
Since the beginning of the year, the average sales price for residential and condominiums has risen by 10 and 9 percent, respectively.
This is higher than the broader Canadian housing market. The nationwide median home price fell 3.9 percent year-on-year last month to $637,673, according to the Canadian Real Estate Association (CREA). If you take the huge Toronto and Vancouver markets out of the equation, the national median price is even lower at just over $500,000.
“In some areas, prices are still increasing slightly, albeit by a low single-digit percentage, bringing back the moderate price growth stability characteristic of the Ottawa resale market. What happened to prices in 2020 and 2021 was unusual. We are moving towards a balanced market where buyers have choice and sellers need to ensure they are pricing their properties accurately‘ noted Torontow in a statement.
She added that buyers are said to be taking their time as Days on Market (DoM) data shows it is approaching the 30-day threshold.
“The rapid sale of homes in early 2022 is a thing of the past,” She said.
In fact, association figures confirmed that residential property sales fell 27 percent year-on-year to a total of 1,137 units. This included a 27 percent decline in residential-class homes (850 units) and a 28 percent decline in condominium suites (287 units). Additionally, Ottawa housing listings are improving with more than 2,000 properties listed in August. These increased inventory duration from months — a measure of how long it would take to run out of current supplies at the time of sales activity — to three months for residential-class homes and 2.2 months for condos.
Could prices give way as fresh supply comes online? The most recent development has been impressive new housing activity. According to the Canada Mortgage and Housing Corporation (CMHC), housing starts rose more than 44 percent year over year to 1,257 units in August. Year-to-date housing starts totaled nearly 7,200 units, up 11 percent from the first eight months of 2021.
The Big Ottawa Housing ‘Reset’?
Much like the rest of the country, Ottawa’s real estate market is stuck between a rock and a hard place. On the one hand, tighter monetary policy is pushing prices down and allowing potential homeowners to fulfill their dream of owning their own home. On the other hand, rising interest rates could make borrowing more expensive and make it more difficult to pass a mortgage stress test.
The rise in prices during the coronavirus pandemic is unlikely to be wiped out, complicating housing affordability in other ways. However, many polls are pointing to the same thing: Many young people are hoping for a sharp drop in the housing market to get a foot in the door.
Unfortunately, many market experts are warning that as the housing market’s meteoric growth is linked to post-crisis economic growth – something the Bank of Canada (BoC) acknowledged last year – any significant correction in Canada’s housing sector could result in a worsening domino effect for all other. And yes, that includes the real estate industry in Ottawa.
Still, this is a “reboot” and “recalibration” for Canada’s housing market, says TD economist Rishi Sondhi.
“Our projected fall in national home prices would only partially mirror the 46 percent surge over the course of the pandemic. Therefore, our forecast can be more aptly described as a market recalibration rather than something heavier‘ Sondhi wrote in a research note. “Our projected peak-to-trough decline in Canadian home sales is well within the range seen in previous housing downturns and was exceeded when sales fell 38 percent due to the global financial crisis.”