October 15, 2024

Homebuyers

Homebuyers struggle to time the market as BoC rate cut looms

Geoffrey Gilliver has never given up his property search, and even considered buying an abandoned church in King City to turn into his family home. The father of two has looked at all types of homes over the last couple of years, keeping an open mind in Toronto's expensive real estate market.

Since he started his home hunt in 2019, he and has wife have rented in the Beach neighbourhood and had a couple kids all while searching for their first property. They wanted to stay in Toronto, which seemed feasible before the lockdowns, he said, but prices ran away from him when interest rates hit historic lows during the pandemic.

"We really want to have a place to settle and stay, and put the kids in school (long term)," he said. "But our options are limited." 

Now, a shift in the real estate market has put Gilliver in a tough situation. As rate cuts loom, he worries there will be more competition and higher house prices, pushing him to try and buy before the cuts come — a time crunch he's feeling more acutely than ever as his oldest child is in the midst of kindergarten.

"I'm worried if the Bank drops rates too fast it could fire up the market," he added, "and it will just create rocket fuel for home prices."







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Geoffrey Gilliver stands in his five-year-old’s room and contemplates fitting their second child in the tiny space. He is struggling to enter the real estate market as a first-time homebuyer. 




Experts say there is strong indication rate cuts are likely to occur in the spring or summer, which will alleviate pressure on high mortgage interest rates but could also open the floodgates for more homebuyers and investors to enter the market, leading to soaring home prices. Potential buyers find themselves toeing the starting line, unsure of how best to time the market, with some feeling an urgency to jump in as prices plateau, while others are waiting for rate cuts to begin. 

Though experts remain divided on how much further home prices will increase, many note there is already keen interest from more prospective buyers this year compared to last. There is a sense, some say, that once rates are cut, increasing demand for property will push Toronto back to a balanced market — it's been a buyers market since September — with sales bouncing back from last year's slump, which saw the lowest unit sales on record since 2000.

Shifting to a more balanced market 

Since the new year, Cailey Heaps, CEO of Heaps Estrin Real Estate Team, has seen a notable shift in market sentiment as buyers feel prices and sales have bottomed out. 

"Buyers feel that the end of lower prices is in sight and maybe want to capitalize on that," she said. "Buyers and sellers are collectively shifting to a more balanced market."

However, buyers aren't rushing in with a sense of urgency, Heaps said, but are entering "trepidatiously" without feeling pressure to buy as they take a "wait-and-see" approach with interest rates.

Sellers, too, are waiting for their moment.

"When rates drop we will also see an increase of inventory as many sellers who have been on the sidelines will need to put their property on the market," she said. "We should see activity in spring, especially if the Bank of Canada begins to cut rates in April."

Some economists forecast that as soon as the Bank of Canada even signals rate cuts, it will increase sales and push up prices.

"We won't see rates as low as we saw in the pandemic, so there won't be that panic buying again," said Philip Cross, senior fellow at the Macdonald-Laurier Institute and former chief economist at Statistics Canada. "But we've already seen the market stabilize after the bank indicated rates wouldn't increase, imagine what a cut would do."

In March 2023, when the Bank of Canada said rate hikes would pause there was a surge of sales during the spring market, which saw a flurry of activity and a boost in home prices. When rate hikes resumed in June and July, market activity dampened, indicating how sensitive the market is to not just rate hikes and cuts, but also pauses, Cross added. 

According to the Canadian Real Estate Association (CREA), sales were up five per cent in December 2023 compared to December 2022, indicating the market is bracing for rate cuts, he said. However, the last thing the bank wants to do is fuel an upturn in the housing market, which could push inflation up again, especially after December's inflation numbers edged up to 3.4 per cent from November's 3.1 per cent. 

"The inflation news was disappointing and the markets are starting to pull back," Cross added. "I wouldn't be surprised if there was just one rate cut, because there isn't a big window for the central banks."

After August, the U.S. Federal Reserve is unlikely to raise rates due to the presidential election, he said, meaning there will be less time to cut rates, especially if the Bank of Canada decides to start in the summer, not spring. Typically, the Bank of Canada follows the lead of the U.S. Federal Reserve, as the U.S. is Canada's biggest trading partner. If the U.S. manages to get inflation under control with its restrictive monetary policy, but Canada doesn't, trading becomes more expensive with its southern neighbour. 

If Canada's central bank only cuts rates once or twice, resulting in a 50-basis-point drop, the change to people's mortgage is negligible, Cross said, but it influences the psychology of first-time homebuyers who have been impacted the most over the last few years.

First-time homebuyers left in the lurch

Since the rate increases began in March 2022, the biggest cohort of missing buyers has been first-time homebuyers, said Phil Soper, CEO of Royal LePage. They're typically 25 to 40 years old and have seen home prices soar for much of their adult lives. 

"There is now an exceedingly rare window where home prices have been flat or declining a little for an extended period of time," he said. Home prices have fallen by almost 20 per cent since the February 2022 peak in Toronto. "The first sign of a change in home values will come from increased activity — more people will shop around when they see an end to sagging home prices." 

But Toronto home prices are still almost 30 per cent above 2019 levels and interest rates are elevated compared to before the pandemic, meaning affordability is "much worse today," preventing first-time homebuyers from entering the market, said David Rosenberg, founder and president of Rosenberg Research and Associates, an economic research firm.

"We have a situation on our hands where the affordability ratio is 50 per cent more stretched today than the historical norm," he said. "There needs to be a 30 per cent surge in income, or a 30 per cent pullback in average home prices to get to more normal affordability measures."

Interest rates need to decline by more than 150 basis points to help the affordability ratio, he added — that would mean changing the overnight lending rate from 5 per cent to less than 3.5 per cent.

Canadian households are also highly leveraged — the debt-to-income ratio sits at a near record of 173 per cent — resulting in tighter lending practices from banks. 

"The year-over-year trend in mortgage lending is 3.5 per cent," Rosenberg said, meaning there has only been a slight increase in the number mortgages granted. "That's flat in volume terms, because this time last year it was an excess of nine per cent."

First-time homebuyers end up feeling the brunt of these changes, experts say, as qualifying for a mortgage becomes harder, which has been a challenge for Gilliver and his family. 

He's waiting for his second round of pre-approvals for a mortgage — he first qualified at $550,000 plus a 20 per cent downpayment minimum — but he's hoping he can get a higher number the second time. 

"That initial pre-approval was limiting for home buying in Toronto," he said. "I'm trying out different levers to see what I can do to improve my pre-approval [amount], with RRSP contributions and things like that." His first pre-approval lapsed after they saw half a dozen homes that all needed significant work — some had mould issues and others were falling apart. 

"We're willing to go to Aurora or Newmarket, and look further outside of the city," Gilliver said. "We'll see what we can get with this second round of pre-approvals." 

To buy or not to buy? 

"This segment of buyers were caught off guard by the Bank of Canada's quick rate hikes," she said. "They're going to need a little more data before jumping back in." That should come as some relief for first-time buyers, as the frothiness during the real estate feeding frenzy during the pandemic caused by speculators likely won't return this year, she added. 

As more first-time homebuyers are priced out of the market, there are still some looking to buy this year, keenly watching market dynamics. Anthony DeStefano, a realtor based in Toronto, is hoping to buy his first property in the city after the Bank of Canada cuts rates. Unlike Gilliver, he'd prefer to pay a mortgage with lower interest rates even if prices edge up "a little."

"It's trying to strike the right balance between home prices and interest rates," he said. "If the bank cuts rates by 100 basis points that would really solidify my position."

Currently, DeStefano sees opportunity arising through distressed sellers with power of sale in locations where home prices have already dropped. And because Toronto is a buyers' market right now, potential purchasers are able to include more conditions — such as home inspections and price reductions — and negotiate if the they feel the home is priced too high. 

"I just managed to help a client save $170,000 on their recent purchase," DeStefano said. "Buyers have a lot of leverage right now." 

But even though the market has tipped in favour of buyers, it's still a tough market for entry-level buyers.

For Gilliver, most of the homes he's seen have been fixer-uppers or "gut jobs" where the entire home needs to be renovated. It can be discouraging, because even though his family has saved substantially for their first home, they now have to factor in renovation costs to their savings. While the once-church in King City had good bones, he said, it needed too much work.

"It's frustrating because as soon as the market is doing better it still feels unattainable." 

Homebuyers experience rough periods in Knoxville genuine estate market

The turbulent Knoxville authentic estate industry was pushed by economic situations, low mortgage prices and greater migration from exterior the city.

KNOXVILLE, Tenn. — Almost any person browsing for a property is owning a tough time in Knoxville's housing market place. Rates of households in the place have arrived at report-breaking heights, with a traditionally small amount of properties currently being put up for sale in the town.

The Knoxville Spot Affiliation of Realtors released the 2022 State of Housing report on Tuesday. In it, they explained that bettering economic situations, minimal home finance loan fees and much more migration from exterior the area led to historically large demand for all styles of housing in Knoxville.

They reported dwelling selling prices appreciated quicker than any other time on history and less properties were being up for sale than at any time right before.

"As a end result, housing expenses grew by double-digits from the preceding calendar year and have ongoing to rise as a result of the early months of 2022," they explained in the report. "The extent of the present supply-demand gap – and the value expansion it has spurred – is really unparalleled."

They also claimed the marketplace is not like the years preceding the Good Economic downturn since the market is not currently being influenced by manipulated desire and free lending specifications. They stated property purchasers are much more qualified than ever, with mortgages going to debtors with a median credit score rating of 778 in the fourth quarter of 2021.

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They also reported most owners do not have personal debt and numerous own the greater part of their home, as a substitute of most of it currently being owned by a financial institution.

"Below these conditions, the exorbitant house value growth of the earlier 2 a long time need to be recognized as the final result of a substantial source and desire imbalance – not a short term or burst-ready bubble," the report states.

It goes on to say that East Tennessee is dealing with a fork in the street: it can make extra residences to continue building them affordable, or it can carry on pushing homeownership out of the access of a lot more people.

They said uncertainty connected to the COVID-19 pandemic initially curtailed the offer of households up for sale in Knoxville. Then, they reported the minimal source prompted an exponentially lessen provide, as men and women held onto households realizing they may possibly not be able to discover another if they sold one.

"A self-reinforcing cycle, less existing house owners are eager to put their houses on the sector than in past many years offered the restricted quantity of homes for sale and worries about locating their own up coming household," the report claims.

They stated Knox County had 1,332 active listings in 2019. It fell to just 324 listings by the finish of 2021, and every month new listings in the county fell to record lows by the conclude of the yr.

Buyers have also gripped the countrywide housing sector, limiting the selection of houses offered for average households looking to obtain them. They stated several institutional traders found they could make extra revenue by buying and renting single-loved ones properties.

"A modern Redfin report uncovered that, nationally, trader entities procured a document-high 18.4% share of all properties sold in Q4 2021 – up from 12.6% a year back – with one-loved ones properties representing 3 in 4 trader buys," the report states. "Of those purchases, 75.3% were being paid out for with all cash."

Having said that, officers claimed investor fascination in the Knoxville region was at nominal stages. They explained investor buys in Knox County remained relatively very low when compared to the nationwide regular, with investor buys symbolizing 11% of Knox County property sales in 2021.

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Even so, most of all those homes were being mid-priced and high-priced homes. Prior to the pandemic, the report states traders ended up most fascinated in very low-priced properties. As ar end result, buyers competed with center-class homebuyers much more generally than at any time ahead of, in accordance to the report.

They also stated Knoxville's economic system rebounded just after the start off of the pandemic, with more work opportunities available and unemployment prices falling to 2.9% in December 2021. Partly as a end result of the economy, housing desire continue to be traditionally solid in the course of the yr.

But, they claimed rises in wages have not protected housing fees in the spot. Ahead of the COVID-19 pandemic, they mentioned 83,500 houses in Knoxville put in extra than 30% of their income on housing.

"With each household selling prices and rents developing at some of the quickest premiums on document, housing affordability worsened considerably considering that the pandemic and continued to drop in the early months of 2022," they said. "In a community opinion poll commissioned by the Knoxville Area Affiliation of Realtors in March 2021, extra than 1 in 3 registered voters — 34% — indicated housing affordability in the Knoxville region was a significant issue, though 28% reported the exact same about housing availability."

They mentioned a loved ones earning in between $50,000 and $75,000 per yr could only afford to pay for 36% of the lively housing inventory in December 2021. It was fifty percent that for persons earning concerning $35,000 and $50,000.

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They stated Knoxville registered additional household income in 2021 than any other year on history. Meanwhile, the median sale rate in the Knoxville area greater 19.7% in 2021.

The report states that though possessing a property is more economical than renting in most of East Tennessee, fewer persons are having a probability to own a residence.

The report says town leaders must contemplate finding means to make much more houses in destinations like Knoxville, the place most individuals are going to. They also reported they could establish a "light-touch density" plan, which would create additional single-spouse and children houses like duplexes, triplexes and fourplexes.

They also claimed area authorities really should transfer away from standard zoning codes to make sure growth conclusions are "predictable, honest and value-efficient."

They also advised setting up a databases to detect vacant and deserted qualities that could be used to develop much more houses, whilst also improving upon regional general public transportation to expand parts in which individuals could transfer to.

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