November 04, 2022

The Market is Slow but…

The market is slow out there. Terribly slow, yet it shouldn’t be!

And it’s slow in an odd way.

There is a definite lack of buyers actively looking for homes, and at the same time, sellers seem to have stepped off to the sidelines as well. It seems both sellers and buyers are just not motivated to act in this market. Which is strange, and I have some theories as to why this is so.

First, let’s break down the numbers.

Over the past 14 years, home sales for the City of Guelph in October have averaged 180 homes per month. October is not one of the busiest months in the real estate calendar, but it is still usually pretty active. Busy open houses, people out looking at properties, and on average 180 homes will sell. In October 2022, home sales were down 24% from 2021 and were down 17% from the long term average. A lot of this can be attributed to the increased mortgage rates impacting what buyers qualify for.

Turning to the other half of this equation, the sellers' listings are also down this past October - 5% from October 2021 and off by over 11% from the historic average of 220 new listings in October.

Sellers, it seems, are also taking a step back from the market.

Sales are down, listings are down, and inventory levels are below the long term average as well.

We can’t blame this situation entirely on interest rates.

Part of the problem in today’s market is that with everyone focused on bad news, we’ve manifested a poor market.

Think about it: when everyone was fixated on a rising market and suffered from FOMO (fear of missing out) on this market, the response was that a lot of people jumped into the housing market, snapping up homes and new construction like it was going out of style.

This is not a typical “slow down” where inventory levels are high or one side of the market is out of balance.

Buyers have sidelined themselves because of rate hikes and the perception that a home in Guelph is too expensive. Sellers are not motivated to sell because they perceive the market to be significantly lower than what they think their home is worth, and that buyers are not suitably motivated to pay even today’s prices.

What we have here is a failure to communicate. We’ve let our perceptions control market conditions.

Hear me out on this.

We demonstrated in issue 330 what affordability meant in the Guelph market, and despite a significant increase in mortgage rates, the average home in Guelph was actually less expensive to purchase and own compared to April of this year.

That million dollar home in April is now below $800,000, which means significantly less down payment required and a smaller mortgage (assuming 20% down in each case). Despite interest rates ramping up, payments per month actually drop by almost $1,000 per month.

The narrative we’ve got on repeat right now is that prices haven’t decreased enough to make buying now more affordable.

Sellers have stepped off to the sidelines as well, because their perception is one of lost equity and value. There’s no doubt that prices are well off from the peak of this past spring. However, if you bought your home anytime prior to 2021, then your home is still worth considerably more than what you likely paid for it.

<img width="400" height="300" src="https://itso.stats.showingtime.com/infoserv/s-v1/MXby-iCZ?w=400&h=300" />

Meanwhile the market sits in limbo, simply waiting.

You and I both know that any market, not just the real estate market, will not remain static for any length of time.

We know that economically, the job market is still healthy. Inflation is slowly retreating, and while a recession of some sort is likely, if we aren’t already in one, the impact appears to be the mild one the Bank of Canada was hoping for.

The opportunity?

Smart buyers and sellers would be taking advantage of this stagnant market. The median sales to list price ratio (the amount the sales price is discounted from the list price) is now at 97.6%, well down from the 110% premium sellers were getting last year. The long term historic average is just over 98%. Using the median list price of $750,000 means you should be able to negotiate that list price down to $732,000. What’s not to like about that?

The opportunities are there. You might just have to change your perspective on this market to find the deal you are looking for.

Thanks for reading. Enjoy the weekend.

Paul

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OCTOBER 2022 MARKET REPORT

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October summary & analysis for Guelph
Neighbourhood breakdown for Guelph
Full home type breakdowns for Guelph, Kitchener, Waterloo & Cambridge