Home News Housing market shows signs of life, but don’t call it a recovery yet

Housing market shows signs of life, but don’t call it a recovery yet

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Higher mortgage rates pose unexpected new risks for many borrowers

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month-on-month decrease house sales Data released by the Canadian Real Estate Association (CREA) finally reversed in October when sales were up 1.8% from the previous month.

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Those with a bearish outlook will be quick to point out that sales in October 2022 were a whopping 36% lower year-over-year, but the month-over-month increase marks the first sales increase since February. important in that there is

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Super low of course mortgage interest rate Brought Higher-than-normal sales in 2020 and 2021The steep and rapid rise in mortgage borrowing costs has reversed the trend in home sales, perhaps pushing home sales activity back to pre-pandemic levels.

In essence, what low interest rates give, high interest rates take away.

Longer-term data, however, suggests that sales activity in October was below pre-pandemic levels. In fact, last month’s sales were 15% lower than his pre-pandemic October 10-year average, not only reversing the pandemic-induced home sales hype, but also making the rise in mortgage costs more likely. It suggests that you have done a lot of damage.

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Additionally, the quality-adjusted MLS Home Price Index (HPI) fell 1.2% month-on-month in October. Also, average home prices across the country fell 9.9% year-over-year. The drop is much more significant than the peak price observed in February.

Nevertheless, sales and listing activity in October suggest the beginning of a market recovery. Sales rose, with new listings in October up 2.2% from the previous month. Sales and new listings growth may be weak, but these signs are positive, barring other unexpected shocks, if buyers and sellers on the sidelines decide to become active again. , which may lay the foundation for stronger recovery.

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The long-term outlook for house prices also provides reason for optimism. For example, the seasonally adjusted National MLS Home Price Index benchmark price for October was $756,200, which is lower than the same period last year and even lower than the peak price observed in February, three years ago. has risen 38.8% from

Even if the housing crash meant that home prices would fall to levels that would offset the rise of the years that followed, such a price fall has yet to materialize in Canada. Across all major housing markets, HPI benchmark prices in October are higher than they were three to five years ago.

Given the heterogeneity of the housing market, three-year comparisons of home prices show greater gains in markets that had not peaked pre-pandemic. For example, his October prices in smaller satellite cities such as Fraser Valley, British Columbia and Barry, Ontario, which have become more attractive during the pandemic, are 55% higher than they were three years ago. Similarly, Greater Moncton, New Jersey prices are 75% higher than his.

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Market bulls, such as Sean Cathcart, senior economist at CREA, believe the slowdown in the Canadian housing market is coming to an end. Others with a bearish outlook predict an even bigger drop in sales and prices.

It’s too early to start celebrating a recovery in the housing market.rise of mortgage interest rate It introduces unexpected new risks to many borrowers, especially first-time homebuyers who choose fixed-payment, variable-rate mortgages. Your monthly mortgage payment could increase by up to 20%. mortgage interest rate.

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The Bank of Canada estimates that 13% of all Canadian mortgages are so-called trigger rateWhere monthly mortgage payments It only covers interest payments and does not contribute to outstanding principal. If mortgage rates rise further, the number of vulnerable borrowers could rise to he 17%.

Floating-rate homeowners in Canada and homeowners nearing fixed-rate mortgage renewals may need to dig deeper into their savings to ensure they can absorb increased mortgage payments. Hmm.

Murtaza Haider is Professor of Property Management and Director of the Urban Analytics Institute at Toronto Metropolitan University. Stephen Moranis is a real estate industry veteran. They can be accessed on the Haider Moranis Bulletin website. www.hmbulletin.com.

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