September 23, 2022

THE GAME OF MUSICAL CHAIRS

We all remember that game from childhood birthday parties: musical chairs.

Well, the real estate market is much like the game of musical chairs. The problem is the music seems to have stopped, or at least everybody is firmly seated in their chairs and not prepared to get up and dance to the music.

This isn’t just a local issue. It’s countrywide and in fact, I’d say it’s North American wide as well.

Governments at all levels have turned their attention away from the pandemic. The crisis du jour is now the economy and, in particular, inflation. The Bank of Canada and the US Federal Reserve have been increasing interest rates as fast as they dropped them during the pandemic.

Today, the fight is to bring inflation from over 7% to the “normal” of 2%. It’s not like we didn’t have advance warning that this would be a problem. We knew 0% interest rates weren’t sustainable, just like we knew that double digit price inflation was not sustainable in the Real Estate market.

Yet here we are, with a market almost frozen in place like it was just over 2 years ago. More on that in a minute.

Last week we discussed the top 5 numbers to gauge the real estate market by:

New Listings and New Sales
Months of Supply
Median Days on Market
Median Price per Square Foot
Sales Price/List Price Ratio

A quick breakdown of those numbers for this month and week:

There were 28 homes sold in the City of Guelph this past week and 57 sold the same week last year. That’s a 49% decrease in sales year over year.

Yet the median sales price for the typical Guelph home (1599 sqft home) was still up 8.8% from last year to $739,950 from $679,900.

The median sold price per square foot this week was $466.60/sqft 3% less than the $479.59/sqft for the same time period last year.

Months of supply: 1.7 months for August 2022 and 0.4 months for August 2021.

Days on Market are up 400% to 32 days this past week!

Reading these tea leaves leads me to believe that both buyers and sellers are fearful of making the “wrong” move.

The challenge for buyers is to act before interest rates increase again, which would further erode affordability or step back and hope that new inventory floods into the market, sellers panic, and prices drop significantly.

Sellers are no doubt aware of the interest rate hikes and the impact on affordability. However, they still seem to be fixated on where prices were just weeks ago and haven’t adjusted their expectations with the market shift.

It’s like musical chairs, except no one wants to play the game and would rather hang on tight to the closest chair in fear that if they get up they’ll be left standing without a seat.

These next few months will be very interesting to watch. I firmly believe that those buyers and sellers that try to hammer out a deal in this shifting market will ultimately come out ahead when the market regains its footing. This is usually the case for anyone that tends to act ahead of the market. Particularly for those who also act while thinking 5-7 years down the road.

Given the population growth in this area and the still-high levels of demand, I for one wouldn’t bet against this market in the long term.

Enjoy the early fall weather, the colours are just starting to show; and remember that fortune favours the brave.

Thanks for following us and have a great weekend.

Paul

CHECK IT OUT! WE’VE JUST RELEASED OUR

AUGUST 2022 MARKET REPORT

THIS REPORT CONTAINS

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