Is a Market Self-Correction on the Way?

>The housing market has been riding high since before the pandemic hit us more than a year ago. Given the impact of public health measures on the economy, the housing market seemed untouchable after experiencing just a short pause last spring. The rebound was quick and ferocious. People’s appetite for home ownership went through the roof, spurred on my low interest rates and low housing supply. Prices are consistently showing monthly gains, despite their already high rate of growth. The majority of listings in the GTA are selling over asking price – sometimes $300,000, $400,000, $500,000 more. This is significant, to say the least. How long can it last?

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While government intervention by means of policy and taxes is a very real possibility in the near future, the housing market often has a way of righting itself naturally. Here’s why.

There’s Only so Much Abuse Buyers Can Take

photo: hadden homes

Buyer fatigue is real. Multiple offers and bidding wars are taking their toll on homebuyers, not to mention the half a million added to your mortgage! It’s stressful, to say the least, leading many buyers to step back from this red-hot market and put their purchase plans on pause. While they wait out this frantic market, they can continue to build their down payment. This should ease some competition among homebuyers, but low supply will continue to be a factor, especially with the federal government’s plan to increase immigration. 

More Supply is Coming

This leads me to my next point: More supply is coming. Spring is traditionally a busy time in the real estate market, so more listings will be coming on stream in the coming weeks, strictly for the season reason. Furthermore, Covid-19 caused many home sellers to delay listing last spring and summer. Now, with mass vaccinations increasing people’s confidence, this spring is expected to have even more supply on the market. This will bring much relief to buyers. Inventory has already started to creep up, and time will tell if the trend continues.

Interest Rates Will Continue to be Low

Hadden Homes
photo: hadden homes

Interest rates will continue to be low, which has been a bonus for buyers in the face of these high housing prices. In fact, some people have attributed this overheated market to record-low lending rates, at least in part. However, the Bank of Canada has said it won’t raise its rate until some time in 2023, giving the economy a chance to recover from Covid-19. Since lenders often take their cues from the BOC when setting their own borrowing rates, interest is likely to continue in record-low territory.

With fewer buyers to compete against, more homes to choose from and continuing low borrowing rates, this spring and summer could be your window to get into Toronto’s hot housing market. Prices will continue to rise, but these factors should contribute to a slower pace of growth, which is good news for buyers. Real estate will continue to be a good investment, especially if you intend to keep it for a while. Regardless of government intervention, relief could soon be on the way. If you can afford to buy, the right time we believe could be right around the corner.

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