Softer fall housing market expected due to high rates, low inventory

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Millennials and Gen Z shoppers will likely be hit hardest by the limited options, says Re/Max

Published on 09/05/2023Last updated 3 hours ago3 minutes reading time

A person walks past a row of houses in Toronto. A person walks past a row of houses in Toronto. Photo by Cole Burston/The Canadian Press Files

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Re/Max Canada is forecasting a softer housing market this fall, with the nationwide average home selling price for all home types remaining flat and sales remaining subdued through year-end.

The real estate firm’s Fall 2023 Housing Market Outlook report blames high interest rates and an ongoing shortage of inventory for the slowdown, with Millennial and Gen Z shoppers likely to be hit hardest by the limited options in the market.

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A Leger survey commissioned by Re/Max shows that 55 percent of Gen Z respondents and 49 percent of Millennials had to change their housing plans due to a lack of affordable options.

The situation is further complicated by the forthcoming Bank of Canada interest rate decision on September 6th. According to the same Leger survey, 33 percent of Canadians interested in the real estate market plan to await the Bank of Canada’s announcement before making any decisions.

Younger Canadians are particularly sensitive to Bank of Canada rate announcements; 47 percent of Gen Z and 52 percent of Millennials say these announcements will influence their buying or selling decision.

“While we await a comprehensive national housing strategy, the market is beginning to ease in some regions, bringing some relief from the exorbitant prices we have seen in recent years,” said Christopher Alexander, President of Re/Max Canada .

Elton Ash, executive vice president of Re/Max Canada, emphasized the importance of addressing the housing supply issue.

“The Canadian real estate market has historically offered homeowners solid returns and financial security. However, for long-term health, we must address housing shortages across the country.”

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In supporting data, 74.1 percent of Re/Max broker regions surveyed from January to July 2023 reported a decrease in the number of listings. Sales transactions in these regions also saw declines, ranging from a 4.1 percent decline to 39.6 percent year-on-year.

While Re/Max forecasts that the national average for home sales and prices for all home types will remain flat through year-end, the regional outlook varies significantly.

For example, Sudbury and Calgary are expected to see the largest average price increases this fall, each at five percent. This increase will take average home prices in these cities to $505,303 and $564,005, respectively.

Conversely, the Durham and Peterborough regions are forecast to see average home prices fall five percent to $1,024,845 and $650,777, respectively.

In terms of sales volume, St. John’s could see a significant drop of 30 percent by the end of the year. A 20 percent drop in sales is also expected for Calgary, albeit with a less severe decline.

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In the greater Toronto area, the real estate market is expected to rise 2.5 percent in average prices, while sales volumes are expected to remain stable and flat. Vancouver is expected to see average house prices fall 2 percent and sales volumes fall 5 percent.

In Ottawa, Re/Max is forecasting a drop in home selling prices for the coming fall season, estimated to be between 2 and 5 percent.

According to Ottawa real estate agent Nick Polegato, the driving forces for today’s buyers go beyond price considerations and inventory availability.

“If prices were the biggest variable for buyers now, we would see more selling in the months of July and August when the market seems to be a bit more flat historically,” Polegato said. “I think buyers would be absent even if inventory was limited if buyer confidence were strong at the moment because house prices are stable.”

Alexander suggested that the weaker decline could set the stage for a recovery in the new year.

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“If the fall market serves as a leading indicator for 2024, we could see a very active first quarter as both buyers and sellers benefit from stabilizing prices,” Alexander said.

Re/Max said 1,517 Canadians ages 18 and older participated in the Leger survey from July 21-23, 2022. Using a panel of 400,000 members and a 90 percent retention rate, the survey has an error rate of +/- 2.5 percent. 19 times out of 20, comparable to a probability sample of similar size.

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