After experiencing significant fluctuations during the pandemic, the real estate market in Waterloo Region is now returning to a more balanced state. This shift can be largely attributed to the rising interest rates, according to local expert Paul Anglin, a real estate professor at the University of Guelph. In his assessment, the market is no longer heavily favoring sellers as it did a year ago.
The Bank of Canada has implemented six separate interest rate hikes this year in an effort to combat rising inflation. Starting at a low of 0.25 percent in January, the current interest rate now sits at 3.75 percent. This increase in rates has been the dominant factor in recalibrating the real estate market. However, Anglin also points to the lack of clarity surrounding future interest rates and discussions of a possible recession as contributing factors.
A Look at a Balanced Market
Anglin explains that a widely used measure of a balanced market is the monthly ratio of sales to listings at the beginning of the month. Currently, this number is not too far from normal. Last month, 489 properties were sold in Waterloo Region, including single-family homes, townhomes, condos, and semi-detached properties. In contrast, there were 928 properties listed for sale. This is a significant shift from a year ago when the number of properties for sale far exceeded the number of properties sold.
Another important indicator that has changed is the average number of days it takes to sell a house. Last month, homes in Waterloo Region remained on the market for an average of 22 days, which is more than double the time it took a year ago. This reflects a less rushed market, providing buyers with ample time to compare alternatives without causing undue anxiety for sellers.
In terms of pricing, the average sales price for a single-family home in October was approximately $860,500, representing a 27 percent decrease from the market's peak in February. Condos also experienced a drop, albeit not as significant, with an average sales price of about $488,200, down 14.5 percent from February. Nevertheless, it's worth noting that the average sales prices for both single-family properties and condos in October are significantly higher than pre-pandemic levels, with increases of approximately 145 percent from October 2019.
Declining Prices for New Homes
While nationwide new home prices experienced a slight decrease of 0.1 percent in September, Cambridge, Kitchener, and Waterloo saw a more substantial drop of 0.6 percent. Megan Bell, president of the Waterloo Region Association of Realtors, attributes this decline to individuals migrating from the Greater Toronto Area (GTA) in search of more affordable options that still qualify them for loans.
Many people moved to the region, driving up home prices to nearly match those in Toronto. However, some have now returned to the GTA due to the lack of affordability in Waterloo Region. Bell also cites the pandemic as a contributing factor, with people initially moving to the region while working remotely but subsequently leaving as they return to in-person office work.
These factors, along with inflation and rising interest rates, have shaped the current state of the real estate market in Waterloo Region, bringing it closer to a state of balance. Bell believes that the market is heading towards a more balanced state, but still believes that sellers maintain an advantage.
According to Statistics Canada, the 0.6 percent price decrease is attributed to builders citing unfavorable market conditions.
Advice for Buyers and Sellers
In the meantime, Anglin offers advice to both buyers and sellers. He advises buyers to make their decisions based on the available information, emphasizing the importance of purchasing a home in which they would be happy living, even if the price were to fall.
For sellers, Anglin acknowledges the possibility of regret but encourages them to enjoy their current living situation. He advises both buyers and sellers to accept the risks involved, as life rarely offers guarantees.
In conclusion, the real estate market in Waterloo Region is undergoing a transition towards a more balanced state due to rising interest rates. While sellers no longer hold the same advantageous position, buyers and sellers alike are urged to make informed decisions while navigating the evolving market dynamics.
