Fall 2023 Market Report: Waterloo Region

INTEREST RATES ARE IN CHARGE

Interest rates continue to have a profound effect on the affordability of housing. And so, the story for Waterloo Region Real Estate in the Fall of 2023 is the same as in our last report in the Spring of 2023, interest rates are in charge and dictating Buyer confidence. 

As noted in early March, the perception that the Central Bank of Canada (BOC) had finished raising rates did bring back Buyer confidence. Throughout the Spring, home prices began marching steadily upward until the BOC quickly halted price growth with two more successive .25% rate hikes. Those hikes have begun reversing the price gains of the Spring. 

rising inventory

When we first entered a rising rate market in the summer of 2022, Sellers largely resisted listing their property on the market. Listing inventory was historically low, and Buyer volume also dropped off considerably. However, now that it has been over a year and a half since rates have begun climbing, homeowners who purchased using variable mortgages at the market peak are feeling the pressure. Listing inventory has been rising steadily over the last four months. In April, the total active listings at the end of the month for Waterloo Region were 703, and the WRAR President predicted continued price increases. By August, the total inventory had risen to 1,094 homes active by month's end, and although not explicitly stated, we entered into a Buyer's market, especially when compared to the number of homes selling. September listing activity continues to remain robust while sales volume is low.

affordability

Unfortunately, inflation persists, and the August CPI (Consumer Price Index) measurement was up 4% from 2022, increasing the likelihood of another rate hike from the BOC. Buyers already have to approve at rates north of 9% when factoring in the mortgage stress test, just in-order to buy a property. The income required to support those debt ratios excludes many would-be Buyers, so sales volume remains deflated.

Market solutions

If interest rates continue to exclude otherwise qualified Buyers, perhaps the market will adapt. Brokerage founder Jake Benjamins recalls in his earlier days that real estate transactions were far more likely to offer vendor take-back mortgages (VTB) or rate buy-downs for the Buyer to circumnavigate the cost of borrowing. Buyers are facing affordability headwinds, but prices are shifting to mitigate this. Sellers are trying to hold onto equity in the face of a Buyers' market for the first time in years. Never before has marketing, creative solutions and negotiation been more critical for those Selling. For those Buying, ensuring affordability and securing a home at a fair price is paramount.

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