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CMHC sees Canadian real estate prices falling up to 15% – BNN Bloomberg

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Canada’s national housing agency plans to revamp its forecasts to call for a drop of as much as 15 per cent in home prices, as higher mortgage rates threaten to cause a protracted slump in real estate. 

Canada Mortgage & Housing Corp. said in July that national housing prices could slide 5 per cent by mid-2023, compared with levels earlier this year. It’s now revising those projections to allow for a 10 per cent to 15 per cent decline, Chief Executive Officer Romy Bowers said in an interview Thursday at the Bloomberg Canadian Finance Conference.

“We’ve seen that inflation has been more persistent than we originally anticipated and the Bank of Canada is taking more aggressive action, so we’re in the process of revising our forecasts,” Bowers said, adding that the new projections would be released soon.

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Since CMHC’s July forecast, the central bank has stepped up what was already one of the most aggressive rate-hiking cycles in its history. It shocked markets by increasing the policy rate a full percentage point on July 13 — the biggest since 1998 — then raised the rate again by three-quarters of a point in September.

Variable-rate mortgages at Royal Bank of Canada, which were offered at less than 2 per cent in February, are now over 5 per cent and poised to go even higher if the central bank lifts rates in October, as expected. The abrupt rise in borrowing costs has had an immediate impact, prompting benchmark home prices to fall for six straight months. 

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CMHC’s new projections would bring its forecasts closer to those of private sector economists. Still, Bowers said price declines must be viewed against the historic gains in home values over the last two years.

“It’s very important when thinking about this price decrease to think about the rapid, sort of unsustainable, levels of house price increases that occurred during the pandemic,” she said, adding that shelter will remain unaffordable for many Canadians. 

In fact, even though prices have dipped since February, it has never been harder for Canadians to buy a home, according to a new report by RBC economists. Total ownership costs, including mortgage payments, now soak up 60 per cent of a typical household’s income, higher than the previous record of 57 per cent.

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LACKIE: Buyers in driver's seat as sellers ride out real estate rough seas – Windsor Star

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I got some blowback last week when I suggested that while quite clearly the housing market is in the throes of a strong correction, life and real estate continues on.

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No, I was not shilling for my industry and, by extension, one might assume, my livelihood.

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Yes, I still absolutely believe that things are rough and about to get rougher.

But notable to me is the fact that even amidst all of the scary headlines and all of the well-founded doom and gloom, there are still real estate deals happening in this city. And while as far as I can tell, the who and the how and the why has shifted from the who and the how and the why that drove that wild market that already feels like a distant memory, I’m not sure what we’re seeing should be written-off as anecdotal outliers.

Transaction volume is down by half compared to this time last year. Interest rates currently stand at levels inconceivable less than a year ago. New homeowners are stressed, would-be home buyers are spooked, and everyone else is trying to figure out how worried they need to be.

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Yes, yes and yes.

  1. Real estate for-sale sign.

    https://torontosun.com/opinion/columnists/lackie-good-homes-still-selling-amid-turbulent-real-estate-market

  2. Ontario Premier Doug Ford and Minister of Municipal Affairs and Housing Steve Clark, address media outside of the Premier's office at Queen's Park in Toronto, Ont. on Monday, May 27, 2019.

    LACKIE: Can housing crisis be fixed by tapping into the Greenbelt?

  3. A real estate sign is displayed in front of a house in the Riverdale area of Toronto on Wednesday, Sept. 29, 2021.

    LACKIE: Real estate market looking more like ‘crash’ than ‘correction’

But here’s what I am observing in real time: buyers are absolutely still out there.

Our transaction volume may be down by half, but the remaining half of what was truly record-levels is not inconsequential. It maybe just feels that way.

Case in point: I listed an adorable house in a central Toronto neighbourhood last week. The perfect starter home for first-time buyers. It would have been an absolute bun fight last winter.

I wasn’t sure how it would go. And because of that, I left nothing to chance. We shined her up, I spent a small fortune on staging, the photos were perfect. We did all the things.

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I also spent a lot of time managing expectations. All we need is one buyer, I explained to my clients — just one.

Never would I have guessed that we would end up with twenty-five groups braving the miserable cold to come to the open house. And these weren’t people just out killing time on a Sunday. These were buyers, with parents in tow, and home inspection reports in hand, armed with their questions and their critical eye. The same buyers that are supposedly priced out or debilitated by the fear of catching falling knives.

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Offer night yielded four offers. But unlike the offer nights of days prior, these prospective buyers weren’t armed with letters to the sellers and waving their bank drafts around. They were cool. They had conditions. And their numbers were conservative. Even in competition.

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The house sold for less than I expected, but with the four offers the market was clearly speaking and my clients were willing to listen.

And this experience tracks with what I am hearing from my colleagues: the buyers still out there will participate at the right price. They will come forward when they’re good and ready. There is no FOMO. They will offer on things, sure, but will walk if it’s not right for them.

And this will be how the prices continue to grind downwards.

So while yes, the market has slowed right down, I wonder if the stasis is also due to the logjam of sellers determined to wait out these unfavourable conditions.

I suspect that once reluctant acceptance of new-new normal settles in, we will see inventory rise and sales volume increase. But I feel pretty confident in saying that it will be quite a long time before sellers leave the table feeling like heroes again.

@brynnlackie

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Real Estate Trends: Homebuilder Sentiment Drops Along With Housing Prices

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Key Takeaways

  • Home builder sentiment, measured by the National Association of Home Builders, fell in October.
  • The report indicates that home builder sentiment has fallen for 10 consecutive months.
  • The housing market is facing multiple challenges, including relatively high mortgage rates and inflationary pressure on household budgets.

If you’ve been paying attention to the housing market, you’ve likely noticed the relatively bumpy ride it’s had over the last couple of years. After rock-bottom mortgage rates contributed to seemingly endless bidding wars throughout 2020 and 2021, the lightning-hot market has cooled in recent months.

The latest homebuilder sentiment report reflects a slower housing market. Let’s take a closer look at the highlights of changing homebuilder sentiment and falling housing prices.

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Homebuilder Sentiment Drops

The National Association of Home Builders (NAHB) takes the temperature of home builders’ sentiment on a monthly basis. In the latest report, home builder sentiment dropped again. The confidence was reflected at 38 in October, which means it’s at half the level it was 6 months ago.

That represents 10 consecutive months of dropping home builder sentiment. With the exception of the uncertain times of spring 2020, this confidence reading is the lowest it has been since August 2012.

“This will be the first year since 2011 to see a decline for single-family starts,” said Robert Deitz, NAHB Chief Economist in a press release. “Given expectations for ongoing elevated interest rates due to actions by the Federal Reserve, 2023 is forecasted to see additional single-family building declines as the housing contraction continues.”

Housing price trends

As of November, Redfin reported the national median home sale price at $397,549. That’s a 4.9% year-over-year increase. While that might seem like a steep climb, housing price growth has actually slowed down quite a bit.

Home builders aren’t the only ones warning of a potential fall in home prices. Some economists are predicting a sharp fall. The Federal Reserve is warning that home prices might fall, but it doesn’t expect anything like the unforgettable housing market crash that happened during the Great Recession.

Potential reasons for housing market changes

With home builder sentiment dropping like a rock, it’s helpful to understand what factors are at play. There are many factors contributing to a changing housing market. Here’s a closer look at the reasons that stand out.

Hot inflation

In recent months, inflation has been a main feature of the economy.

The Consumer Price Index (CPI), a popular measure of inflation, was sitting at a 7.7% year-over-year increase in the October 2022 report. Although this reflects a gradual decline from the peak earlier in the year, we are still living in highly inflationary times.

But you probably don’t need to look at a special report to know that inflation is present in a big way. You’ve likely noticed inflation as it hits your household budget. Individuals and families across the nation are forced to spend more on basics like food and electricity.

With this pressure on household budgets, it’s difficult for many would-be homeowners to pull together the funds necessary for a down payment on a home. Plus, the increased costs in other areas of their budget might make shelling out for an expensive monthly mortgage payment impossible.

Rising interest rates

In response to sky-high inflation, the Federal Reserve has been aggressively tackling the problem. Although the central bank prefers to have some level of inflation in the economy, the current inflation rate is well above the 2% target.

The Federal Reserve increases the federal funds rate when it wants to tame inflation. Throughout 2022, the Fed has instituted a series of rate hikes. As the federal funds rate increases, so do borrowing costs for homeowners.

Mortgage interest rates hit a 2022 peak of 7.08% for a 30-year fixed-rate mortgage. Since then, mortgage rates have fallen a bit. As of November 18, mortgage interest rates are down to 6.61%. But regardless of this small tumble, mortgage rates are still significantly higher than this time last year when the average interest rate on a 30-year fixed-rate mortgage was 3.10%.

Higher mortgage interest rates lead to higher monthly payments for borrowers. The National Association of Realtors reported that the average monthly payment for a homebuyer in the third quarter of 2022 was $1,840. That’s significantly more than the $1,226 average in the third quarter of 2021.

Higher mortgage costs often mean that buyers can’t afford as high of a sales price. With this factor in play, the possibility of falling housing prices seems to make sense as would-be homebuyers are getting priced out of the market.

How This Impacts Your Investment Portfolio

The housing market isn’t the only sector of the economy impacted by a combination of hot inflation and rising interest rates. As the real estate market shifts around us, you might be interested in adding this exposure to this asset class to your portfolio. But you might not be interested in monitoring the minutiae of the up-and-down housing market trend.

One way to add exposure to real estate trends is by harnessing the power of artificial intelligence through a Q.ai Investment Kit. For example, the Global Trends kit takes real estate into account when making trades that align with your portfolio goals. Consider using this new style of investment technology today.

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Buyers in driver’s seat as sellers ride out real estate rough seas

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I got some blowback last week when I suggested that while quite clearly the housing market is in the throes of a strong correction, life and real estate continues on.

No, I was not shilling for my industry and, by extension, one might assume, my livelihood.

Yes, I still absolutely believe that things are rough and about to get rougher.

Genius Dog 336 x 280 - Animated

But notable to me is the fact that even amidst all of the scary headlines and all of the well-founded doom and gloom, there are still real estate deals happening in this city. And while as far as I can tell, the who and the how and the why has shifted from the who and the how and the why that drove that wild market that already feels like a distant memory, I’m not sure what we’re seeing should be written-off as anecdotal outliers.

Transaction volume is down by half compared to this time last year. Interest rates currently stand at levels inconceivable less than a year ago. New homeowners are stressed, would-be home buyers are spooked, and everyone else is trying to figure out how worried they need to be.

 

But here’s what I am observing in real time: buyers are absolutely still out there.

Our transaction volume may be down by half, but the remaining half of what was truly record-levels is not inconsequential. It maybe just feels that way.

Case in point: I listed an adorable house in a central Toronto neighbourhood last week. The perfect starter home for first-time buyers. It would have been an absolute bun fight last winter.

I wasn’t sure how it would go. And because of that, I left nothing to chance. We shined her up, I spent a small fortune on staging, the photos were perfect. We did all the things.

I also spent a lot of time managing expectations. All we need is one buyer, I explained to my clients — just one.

Never would I have guessed that we would end up with twenty-five groups braving the miserable cold to come to the open house. And these weren’t people just out killing time on a Sunday. These were buyers, with parents in tow, and home inspection reports in hand, armed with their questions and their critical eye. The same buyers that are supposedly priced out or debilitated by the fear of catching falling knives.

Offer night yielded four offers. But unlike the offer nights of days prior, these prospective buyers weren’t armed with letters to the sellers and waving their bank drafts around. They were cool. They had conditions. And their numbers were conservative. Even in competition.

The house sold for less than I expected, but with the four offers the market was clearly speaking and my clients were willing to listen.

And this experience tracks with what I am hearing from my colleagues: the buyers still out there will participate at the right price. They will come forward when they’re good and ready. There is no FOMO. They will offer on things, sure, but will walk if it’s not right for them.

And this will be how the prices continue to grind downwards.

So while yes, the market has slowed right down, I wonder if the stasis is also due to the logjam of sellers determined to wait out these unfavourable conditions.

I suspect that once reluctant acceptance of new-new normal settles in, we will see inventory rise and sales volume increase. But I feel pretty confident in saying that it will be quite a long time before sellers leave the table feeling like heroes again.

@brynnlackie

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