2023-01-04: Canada's housing market is correcting
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1. Canadian Detached Home
Prices Are Plummeting, Here Are The Hardest Hit Markets: Source: https://betterdwelling.com/canadian-detached-home-prices-are-plummeting-here-are-the-hardest-hit-markets/
Extracts from the article:
Ontario is
home to the largest percentage point drop from peak in Canada. Single-family
homes fell the most in Kitchener-Waterloo (-27.7%), Cambridge (-27.0%), and
London-St. Thomas (-26.7%). All three of these markets have made declines large
enough to be called a crash. Since they were all in pricey Ontario as well, the
declines amount to at least $223,600 in lost equity.
Speaking of
massive dollar declines, Ontario once again leads in this area from peak with
BC putting up a fight. The biggest drop in dollar terms was Oakville-Milton
(-$478,600), with single-family homes shedding a quarter of their value in just
a few months. It was followed by Mississauga (-$376,000), and Fraser Valley
(-$369,800).
Toronto
single-family homes have seen the fourth largest price drop when measured in
dollars. The benchmark price has dropped -20% since peaking, which is a drop of
$320,200 in just nine months. That’s an average decline of $35.5k per month
since February—and officially makes it enough to be considered a crash. Though
the market as a whole is just a few points shy of being considered a total
crash.
2. Record number of condos
to flood Toronto market in 2023:
Source: https://www.theglobeandmail.com/business/article-real-estate-slow-sales-preconstruction-condos/
Extracts from the article:
A record
number of new condo units will be completed in Toronto in 2023, just as
skyrocketing mortgage rates make it harder for investors to close on their
properties.
Nearly
32,000 condos will hit the city and surrounding suburbs, according to data from
condo research firm Urbanation Inc. That surpasses the previous high in 2020,
when 22,473 units were completed.
The raft of
units are coming on the market after jumps in interest rates have ramped up
borrowing costs and led to a drop in real estate sales and home prices.
Now, many
buyers are having problems qualifying for a mortgage, with five-year interest
rates topping 5 per cent. As well, lenders are appraising units at lower
prices, meaning that the buyer has to come up with extra funds to make up the
difference between the smaller mortgage for a unit, based on the lower
appraised price, and what the buyer agreed to pay.
Preconstruction
condos, which have not yet been built, are mostly bought by investors who plan
to rent their units and/or profit from a resale. To secure a preconstruction
condo, a 20-per-cent down payment is required. After the condo has been built,
the buyer is required to pay the remaining 80 per cent.
“Investors could be looking to exit before they have to close on the unit and they may face difficulties qualifying for a mortgage given what’s happening with interest rates,” Urbanation president Shaun Hildebrand said.
This has led to an uptick in buyers trying to get out of their newly built condos by selling the right to buy their new unit, also known as an assignment sale.
“A lot of
people are assigning because they can’t qualify for a mortgage nowadays,” said
Brigitte Obregon, a broker with Re/Max Ultimate Realty who has sold
preconstruction condos since 2009.
Higher mortgage payments have also made it less profitable for investors to own condos.
The average condo ownership cost in Toronto was $3,506 a month as of the third quarter of 2022, according to Urbanation. In comparison, the average monthly rent in the region was $2,733, which left the condo owner paying an average of $773 out of pocket every month. That is up from an average shortfall of $235 a month in the third quarter of 2021, $196 in 2020 and $17 in 2019, according to Urbanation.
3. ‘A
complete 180’: Housing prices steeply fall in Peterborough, bringing stability
to buyers
Extracts from the article:
Economic
shifts, including rising interest rates, have cooled the housing market in
Peterborough, but for how long?Economic shifts, including rising interest
rates, have cooled the housing market in Peterborough, but for how long?
At the start
of the year, February saw the average home price in Peterborough reach a
historic high of $885,153.
But by
September, seven months later, the average had dropped to $726,862, according
to The Canadian Real Estate Association.
“It is a
different world out there today,” said Kate Kidd, a real estate agent and
president of the Peterborough and the Kawarthas Association of Realtors.
And this new world is bringing much needed stability, putting an end to bidding wars and inviting more offers with conditions.
“The prices
(before) were unsustainable,” she noted.
2023-01-04: US Fed Suggests No Easing of Monetary Tightening Soon
ReplyDeleteFederal Reserve officials said they will need to keep interest rates high for “some time” in order to get inflation down to their 2% target level.
Minutes from the Fed’s December meeting showed "participants generally observed that a restrictive policy stance” would need to be maintained until data “provided confidence” that inflation was on a sustained downward path toward the Fed’s goal. The minutes noted that several policymakers commented historical experience “cautioned against prematurely loosening monetary policy,” and that none believed it would be appropriate to reduce the federal funds rate target this year.
At the meeting, the Fed had raised rates by 50 basis points (bps), putting them in a range of 4.25% to 4.5%. That came after four consecutive increases of 75 bps as prices climbed. Members also boosted their median outlook for rates in 2023 to 5.1% from 4.6% in September.
Not a Sign of Pulling Back
The minutes indicated a number of participants felt it was important to make clear that the slowing of rate increases was not a sign of weakening resolve to fight inflation, or that prices were already on a persistent downward trajectory.
Officials also expressed concern that their efforts to fight inflation could be hampered by undue optimism about Fed moves. They explained that because monetary policy worked importantly through financial markets, “an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee’s reaction function,” would complicate their efforts.
The minutes did not give any indication of what the Fed will do at its next meeting on Jan. 31 and Feb. 1. The CME’s FedWatch tool puts the probabilities of a 25-bp hike at 70.7%, and a 50-bp jump at 29.3%.
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Notes: Bank of Canada usually follows or matches increase or decrease in interest rate set by US Fed. Therefore the BoC rate would keep going up at slower pace in 2023. BoC rate goes up that would lead the prime rate and mortgage rate up as a result.