On June 5th,2024, Canada became the first G7 nation to cut interest rates. The Bank of Canada made its first rate cut in almost four years, reducing the policy rate from 5% to 4.75%.
Many people were predicting that the rate cut would increase activity in the market but the reverse happened. Activity is there but only from SELLER's side as Inventory has increased in almost every city of the Greater Toronto Area & outside GTA. Buyers are still struggling to qualify at high qualifying rates and are reluctant to overpriced house prices. To bring buyers into motion, we need at least 2 more rate cuts so that qualification becomes easy & buyers feel confident in their purchase.
Why there is an increase in inventory?
1. Investors who bought in the COVID era at variable mortgages are now struggling badly with cash flow. Many investors out there are putting as much as $2000 from their pocket into their investment property. They are now trying to get rid of the burden.
2. People who upsized in 2021 & early 2022 are now planning to downsize. So many people who bought houses in a range of $1.5m-$2m during peak market have seen mortgage payments increase as much as $3000 every month. Even making a rentable basement for additional income is not able to cover the entire increased cost.
3. Sellers & investors feel that a 0.25% rate cut would suddenly bring buyers into the market so everyone is trying to take advantage of it which led to more inventory. This rate cut financially doesn't make much difference to buyers when it comes to qualification. but Yes, psychologically both sellers & buyers feel good about this rate cut.
Now Let's talk about the Condo Market:
There’s a record number of Toronto condominiums on the market right now, and despite record immigration, and an ever-worsening housing crisis, nobody seems to want to buy them.
Reasons:
1. Disfunctional Layouts.
2. High Condo Maintenance Fees.
3. Compact Size. (Low sq.ft.)
4. Investors fail to get positive or neutral cash flow.
5. Record-breaking new construction.
Sellers vs Buyers, who has more advantage in the current market?
1. Buyers now find themselves in a favourable position as they have more options, which means they can shop around, have much-needed home inspections and put in conditional offers.
2. Sellers looking to sell their property in the range below $1.2 million should expect multiple offers if the property is well presented and most importantly, UNDERLISTED to attract buyers. Anything over $ 1.2 million, falls into the category of the slow market unless the property is highly desirable location & full of upgrades.
3. Sellers who are confused that they should buy first or sell first must sit with an experienced agent and listen to them. Every property is different & everyone's situation is different. One can't generalize these scenarios.
Why prices are still so strong in GTA & surroundings?
1. Immigration is a HUGE driver of demand. when you’ve got half a million new people coming into the country and close to half settling in the GTA, all those people need places to live. And while most new immigrants tend to rent first, their eventual plan is ownership.
2. This is where the jobs are. As more and more businesses demand that employees return to the office, at least on a hybrid schedule, living closer to work is becoming a greater draw than it’s been since before the pandemic.
3. Renting is expensive. While it’s the only option for many, most people would rather put their money into their own homes than towards a landlord’s mortgage.
4. We don’t have nearly enough homes to meet demand. Lack of supply is by far the biggest contributor to price resilience. The federal government just announced an aggressive housing plan to unlock 3.87 million new homes by 2031. It’s a promise the National Post has called “utterly daunting” and I can’t say I disagree. But even if they manage to make good on it, I still think the GTA will be a long way from getting the housing we need to achieve real affordability.
Thanks for reading my insights about the real estate market.
If you want to buy, sell, invest or have questions, reach me at 647-676-1700.
RAJVIR GREWAL,
Real Estate Broker, REMAX GOLD
