As we all know, Canadian real estate is experiencing its deepest correction in 40 years. Experts have predicted corrections or crashes before, but none have materialized in recent years.
The Canadian Real Estate Association's MLS Home Price Index edged down 1.7 percent month-over-month in July, but it was still up 10.9 per cent year-on-year. While we have seen some easing in prices, the sky is nowhere near falling. In fact, there is relative stability in terms of market conditions, so buyers shouldn't expect big bargains. Sales-to-active listings remain squarely in balanced territory overall and even tight in some areas.
The Bank of Canada implemented four interest rate hikes since March, with more to come. The near-zero rate that Canadians have enjoyed and taken advantage of over the last two years helped supercharge housing market activity. Rising interest rates have increased the cost of borrowing, prompting some prospective homebuyers to move to the sidelines as they take a wait-and-see approach to navigating the market.
The Bank of Canada holds the key. If they proceed with caution, they should be able to bring inflation back to its target rate of two per cent and markets will settle. Buyers today are better qualified. According to a Canada Mortgage and Housing Corporation (CMHC) report in 2021, credit scores have climbed in recent years. We also saw reduced loan-to-value ratios in the Greater Vancouver Area (GTA) and Greater Toronto Area in 2022.
In Q1 2022, Vancouver and Toronto had significantly reduced their loan-to-value ratio, with Vancouver sitting at 38% ($484,327/$1,325,265) and Toronto at 45%. Most homebuyers buy and hold their principal residence for between five and seven years, and that time is increasing. Negative headlines are attention-grabbing and panic-inducing, and there's an old saying in the media industry: "if it bleeds, it leads". So, if you want to buy a home, buy one that you can afford now; stay within your affordability range.
CREDIT: RE/MAX
