Spring Market Projections 2024 - Waterloo Region
In our last update, we completed a brief summary of the 2023 market, noting a strong start to last year, buoyed by expectations of interest rate relief. This was followed by a price retreat when the Bank of Canada hiked rates successively over the summer of 2023 to effectively cool the market. Why bring this up again?
The Holding Pattern
The narrative has begun much the same way for 2024. Those bullish on real estate (see values increasing in the short term) believe rate cuts are imminent and house prices will increase. However, after two months of flat sales in 2024, values are holding month over month and year over year. Real estate appears to be in a holding pattern, constrained by affordability issues and reduced purchasing power of the average consumer. Sellers are reluctant to sell, believing the market could rebound anytime, and hesitate to lower prices. If you remove last year’s anticipation of rate cuts in Spring 2023, real estate values have been mainly flat across the remaining period with historically low sales volume. Until we clarify the long-term trajectory of inflation and interest rates, Benjamins Realty sees this pattern continuing indefinitely.
Source: Waterloo Region Association of Realtors.
What About Interest Rate Cuts?
Interest rate cuts may not guarantee an instant price rebound if the economy takes a downturn and unemployment creeps higher. However, given the relative health of the North American economy and the persistence of inflation (highlighted by the most recent rate announcement from the Central Bank), we could see higher rates for longer. After all, the decade from 2010-2020 featured historically low interest rates. This could further reinforce the suggested holding pattern with one caveat *unless Sellers are compelled to sell because of higher rates and listing inventory increases.
What does it mean for Buyers, Sellers and Investors?
BUYERS
Potential Buyers can remain confident if they have strong pre-approval and financing in place. We see Buyers adapting to the new market and continuing to peg their offer’s value to comparable properties that have already sold (an imperative purchasing strategy). Conditional offers are once again commonly used, including the “sale of a Buyer’s property”. We project that Buyers are less likely to try to anticipate rate cuts this spring in opposition to 2023 activity. If inventory continues to rise, there could be an opportunity to find property at good value, particularly in older or cosmetically dated homes. Top-shelf homes, finished and maintained to high standards, continue to command plenty of attention and competition.
Sellers
If you are considering Selling your home shortly, now is a great time to begin considering how your property will compare against the competition. Spring markets often provide more potential Buyers but also more listings to compete with. As noted in our Buyer section, top-shelf homes finished and maintained to high standards continue to command attention and competition. Aim to have your home present cohesively: if you have an updated kitchen but haven’t painted the living room and dining room in twenty years, now is the time! As always, if you have questions about improving your property's value, we are always available to discuss. If real estate values continue a holding pattern, sweat equity is a great way to increase value in the meantime.
Investors
Landlords may be ready to begin unloading properties as mortgage renewals arise. Given the higher cost of borrowing money, investors should focus on the cap rates and returns carefully. If a property can produce income in these conditions, it will be even more profitable down the line as interest rates potentially come down.
For example, Benjamins Realty has an exclusive listing for a lodging home with 12 units and a net CAP rate of 6.76% (contact us for details).
Or consider this nearly brand new end-unit freehold townhouse backing onto green space. It has a 3-year lease, a CAP of 4.9%, and a net income of nearly 32k per year—a fantastic asset in a growing town.