A Mid Summer’s Night Numbers: Issue 372

With apologies to Shakespeare.

Slow blink, I’m back in my youth thinking summer is going to be endless, yet here we are 4 days into August and I’ve barely scratched my summer fun list! The market on the other hand seems to have packed up and moved to the cottage for the season. It’s been slow. Lethargic is a good word to describe how July felt. Granted, this is the first full summer without Covid on everyone’s mind and I can appreciate the summer vacation itch needed to be scratched. I hope that “summer” is the only influence on the current conditions.

I somehow doubt it.

There’s more of a malaise to the market than just nice weather and vacations. Interest rates of course are a big contributor to this lack of enthusiasm in the market. A doubling of rates over the past 12 months is probably enough to make most people think twice about committing to an average mortgage of $500K+. The Bank of Canada knew what it was doing with the rate hikes. With inflation almost tamed, the next practical target would be the housing market. It’s impossible to build ourselves out of this problem in the short term and higher interest rates will have some buyers sitting on the sidelines which will take pressure out of the market.

Stay with me, this isn’t a conspiracy post.

We’ve been talking about the lack of inventory for many months. 30% year over year price increases haven’t enticed more sellers and investors to the market adding their homes to the inventory of homes for sale. You’d think investors in particular would be jumping on the increased short term value of their properties. It hasn’t happened.

If you sell, what do you replace that asset with? Investors haven’t been able to find something local to buy that will produce cash flow and are faced with moving that money to a different community or province. Alberta and Saskatchewan are attracting a lot of investors because of attractive pricing, high rents and a market not as controlled as the rental market here in Ontario.

I think the biggest impediment to sellers in the market is what I’ll call the golden handcuffs.

Remember those backyard barbecues where your neighbour would brag about buying before the prices spiked up? You cringed because they paid $100K less than you did to be on the same street. Another cringe-worthy moment is that they are now boasting about how they locked in to a 5 year mortgage under 2.5%. That mortgage is the golden set of handcuffs keeping that homeowner from moving for the next few years. Yes they could port the mortgage, but any increase would be at a much higher level and would average the rate up. There’s no incentive for someone with that sweet mortgage rate to be moving. This is having a major impact on inventory levels.

Personally, I believe we’re in for a market that, at best, is going to be sluggish for the next 6-12 months until interest rates have settled, and those golden mortgages get closer to renewal time.

Will it be a horrible market? Not likely, just a market that veterans like myself will recognize from the mid 90’s that required a lot of creativity and work to show people the value of getting into the market. It was a grind back then, and it’ll be a grind moving forward. The grinders, like myself, will thrive in this kind of market because it means we’ll have to work, innovate and grind to put deals together.

On to the July numbers.

July saw 158 homes sold, which represents an increase of 22.5% over July 2022, but a decrease of 16.8% over last month.

Listings are down 7.4% from July of 2022 and were down 15.3% from last month. The Guelph market typically on average has over 300 new listings per month, which means inventory levels remain historically low and is helping keep home prices elevated. The result, we are still in a Seller’s market in most neighbourhoods and parts of Waterloo and Wellington regions. For a detailed look at the numbers you can download a PDF of the July Market Report.

Like Shakespeare's most popular play A Midsummer Night’s Dream, the current real estate market is full of subplots and intrigue. For some this may be a nightmare, for others it will lead to a most satisfying outcome. So perhaps the real estate fairies will bless our markets with good fortune and we’ll all end up with what we need.

Enjoy the long weekend and thank you for reading and following us.

Paul

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