By Condo Culture
There are a lot of new developments in this bustling Spring real estate market, and we have put together a comprehensive look at all of the activities in play to help you keep your finger on the pulse. We have a number of New Resale Listings as well as a number of exciting New Development launches such as Anthem at Metalworks in Guelph, Q Condos in Kitchener and Moda and The Jake in Waterloo.
The core topics we will cover are pricing and affordability, key interest rate increases, and examining the local market conditions relative to other markets and national headlines.
TLWR: The signal of rate increases artificially inflated the market over the last 8 weeks as buyers rushed to use their locked-in rates. That short term surge has created less demand today and perception of a market ‘pull back’. Rates are still low historically speaking and the local region fundamentals are very strong and poised for continued real estate asset appreciation. Real Estate can be used as a hedge against inflation.
We saw average sale price declines in townhomes across Kitchener-Waterloo, Cambridge, and Guelph, between February and March. An uptick in supply and a cooling of buyer demand ultimately led to fewer offers per listing and less heated bidding wars. On average, we are still seeing townhomes sell between 14% to 27% above list price in these markets, so it’s still very much a seller’s market despite a single-month decrease.
The apartment-style condo market fared better and we saw a strong increase in the city of Cambridge. As the most affordable housing category, demand for condos remains strong particularly as rising rates squeeze affordability for first time buyers. Investors also tend to favour the condo category based on affordability and appreciating rental income.
According to the Kitchener-Waterloo Association of REALTORS® (KWAR), benchmark pricing for apartment-style condominium units was up 4.2% compared to February 2022 and benchmark pricing for a townhouse was up 4.9% compared to February 2022.
In comparison, benchmark pricing for detached homes decreased 4% compared to February 2022.
This further highlights the impact of affordability on different housing categories.
In 2022, Canada’s real estate market got off to a blazing start, and recent aggregate benchmark pricing for the country is forecasted to rise by 8.1% - up from a previous estimate of 6.2% according to a recent report from RBC.
Find out what your condo is worth here. It’s a confusing time for many homeowners and we completely understand given all of the variables at play - we help to cut through the noise, so you can make sense of the rapidly changing market and comprehend what it means for your property specifically.
On April 13th, we saw the Bank of Canada raise the key interest rate by 0.5% - the highest in 22 years. We also saw a 25 basis point increase in March, so over the last seven weeks or so, it has gone up by 75 basis points to sit at 1%.
When we get into rate hike cycles as we are experiencing now, there tends to be a rush of people who accelerate their buying timeline to try to lock in the best rate possible before further increases occur. This can create demand spikes to push pricing up. The surge over the last 8 weeks has created less demand today and the perception of a market ‘pull back’ Rates are still low historically speaking and the local region fundamentals are very strong and poised for continued real estate asset appreciation. If you erase the 8 week period of temporarily inflated prices, it appears that we are still on a gradual uptrend.
Rising rates will shrink purchasing budgets and squeeze affordability. For qualified Buyers this could lead to fewer bidding wars and modest price relief. This should help improve the buying experience and could prove to be a good time to get into the market. This will likely also have the effect of shifting additional buyers into more affordable housing categories like Condos.
We are expected to see further increases in 2022, with the goal of getting back up to more normal levels as we have seen in the past to help better control inflation. To see how interest rates affect mortgages, be sure to read our informative article on the pressing topic from last month.
When it comes to inflation, it’s also important to recognize how the real estate market reacts in an inflationary environment. We hope to be tackling this soon in an upcoming blog article but in the meantime there’s lots of great information available online on this topic. Long and short? Hard assets such as real estate have historically been exceptional hedges against inflation.
Supply in the region, while up a bit recently, is still near historically low levels. Developers can’t build fast enough to keep up with demand from both local and out-of-town buyers. Strong employment, increased immigration, and overall population growth in the region are putting further pressure on the supply / demand balance. The lack of labourers and low supply of raw materials necessary to build new homes is an ongoing issue for developers, and these challenges and issues will continue to affect the industry for the foreseeable future. For now, these shortages and the upward pressure it puts on construction costs, continue to be the dominant factors that are driving up the cost of new housing and contributing to overall price increases across the market as a whole.
There’s a lot of talk about real estate beginning its inevitable decline, some are calling it a market correction, but the fundamentals between low supply, high demand, low unemployment rates, and improving immigration due to pandemic restrictions easing, signal consistent growth over time. It’s also important to consider that not all markets are equal (more on that below).
The real estate market can be emotionally charged and fueled by speculation but homeowners and investors who have a long-view perspective on the industry will do well financially.
Given these fundamentals, we believe the odds of seeing a true market crash are low, especially since millennials are in their prime homebuying years and will remain a driving force, along with growing immigration numbers that will provide an additional boost for sustained demand. Blips of cooling can be expected, but a deep freeze over a prolonged period is unlikely since the appetite for home buying isn’t going away locally.
The Canada Mortgage and Housing Corp. (CMHC) says that it expects home sales and price growth to remain elevated this year, but ease from the lofty highs of 2021. Prices are expected to remain high based on the strength of employment, immigration and the supply / demand balance. They forecast that by late 2023 or early 2024, we will see more historical averages.
The CMHC also expects that homeownership affordability will become more of a challenge as interest rates rise and prices remain high. For those that are choosing to sit on the sidelines in anticipation of things cooling and affordability improving there is a risk that this won’t happen. The most important variable of a real estate investment is time, so getting in sooner rather than later is never a bad thing. Timing a market is challenging, and if you plan on being in a home you buy for at least 3 years, then chances are you will see a healthy increase and ROI if you opt to sell and move elsewhere. The mortgage amount you can get approved for will also decline as rates rise, so don’t let your buying power diminish as home pricing continues its upward trajectory this year and beyond. Condos are increasingly becoming a go-to real estate type for many homeowners as they are quality, affordable options.
When evaluating some of the sensational media headlines on the state of Canada’s real estate market, it’s important to note that not every market is equal nor is every housing category as discussed above. Local market conditions in the Waterloo region bode well for continued real estate market growth and strong Condo / Townhome growth as our region grows up.
The local economy continues to evolve in a strong direction as the Waterloo region added 15,000 new jobs in 2021. The unemployment rate declined from 9.6% in 2020 to 6.5% in 2021. The region had the second-lowest unemployment rate in Ontario last year and was the ninth-lowest among all major metropolitan areas across Canada. Despite a global pandemic, data shows that the region is back on pace for becoming one of the quickest growing metropolitan areas in Canada.
Nearly 1.7 billion new building permits issued in 2021 for the Waterloo region, the second-highest ever behind 2019’s total. 1.4 billion of these were for residential permits, up 49% from the 10-year average. 6,000+ residential units were added in 2021, and over half of them were apartments and condos. With the regions’ population expected to grow to nearly 1M people by 2051, this supply is desperately needed.
Recent stats show that the amount of supply in KW has increased between February to March - 0.6 to 1.0 for condos and 0.4 to 0.8 for townhomes, so there are more buying options available, but demand is still outpacing supply by a wide margin. This particular stat indicates the number of months of inventory in relation to how long it would take to sell off at the current rate of sales.
We are quite bullish on the future of the local condo market as the population growth is strong, supply and demand are worlds apart, the area is growing up with strong core densification, and an increasing number of companies are opening offices here. KW is progressing towards becoming a world-class economy, and other positive dynamics are also at play such as significant investments in transit options in the downtown cores. For more information on the rapid incline of the KW real estate market and its sustainability for decades to come, be sure to give this informative article a read.
If you don’t already own real estate, you shouldn’t feel like you’re too late and are getting left behind. No matter if you’re a first-time buyer, an experienced buyer and seller, or an investor, we would love to help you uncover value buying opportunities. We have a number of strong Resale Listings and New Development opportunities to discuss as well as some exceptional value off market opportunities.
Get in touch with us so we can learn more about your current situation and goals. We are passionate about helping our clients succeed in every selling, buying, renting, and investing transaction, and are there every step of the way throughout the journey and beyond. We are the local condo experts - connect with a Condo Culture REALTOR® to leverage our specialized condo expertise and get the amazing results that you deserve!
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