Cam, it’s almost 3 weeks into January! Why didn’t you write this earlier???? I get it, but hindsight is 20/20 and I feel that now is the perfect time to take a look back at the year that was and draw some conclusions about the real estate market. Sound fair enough? Good, let’s dive in.
2023 as a whole was a pretty weird year. When we look back at the data from 2023 in say, 10 years, I think it will represent a blip on the radar in certain categories, and could potentially fall into the same category as a post 2008 market. Why do I say that? Because I think an important rule of real estate is to buy real estate when everyone else does not want to buy real estate. Which brings me to this:
The dominant story of 2023 in my mind has to be the lack of sales that took place last year. For various reasons, buyers decided to hit the showers and sit this one out on a massive scale. Real estate sales were down BIG. And I don’t know how to emphasize this enough. People just weren’t in a serious position to buy real estate last year. Now that is not to say that a lot of people didn’t want to buy, they just weren’t serious about it enough to actually do something. That is a big distinction to make and it has huge implications for the market moving forward. But this is blog is about the past so we will look into our crystal ball another
day.
Let’s look at the facts and then we will look at the factors (nice little ring a ding saying there if I do say so myself). Here’s the facts: 2023 had the lowest number of sales in a single year since 2013 (and that’s as far back as my data goes).
4727 sales in 2023 and the average of the 10 years previous was 6542. The average of the 5 years previous was 6728. So suffice it to say we were missing between 700-1000 sales (and potentially more). That’s 2300 less sales than we saw in 2021 which is a huge discrepancy. Again, if we can agree that it’s smart to buy real estate when nobody else wants to buy, then there are bound to be more than a few happy folks in 5-10 years time who can look back on their buying experience in 2023 with a big smile.
Every single month last year I remember thinking “this has got to be the lowest number of sales we’ve ever seen in the month of _______” and that was largely true throughout the year. It all adds up to what we see above and an overall quiet year on the sales front. But why? A few big reasons.
#1- Interest rates. Why didn’t I say that interest rates were the number one story of 2023? Because I am sick and tired of talking about them! It’s boring, old news, blah blah blah. It’s all we seemed to talk about in 2023. And guess what? Can’t do anything about it. The economy is the economy and unless we all stop spending our excess cash at Starbucks and the mall, it’s not going to change any faster. And besides, interest rates aren’t a result of anything, they are just one factor impacting the market. So yes, we saw high interest rates in 2023, potentially the highest we will see in the foreseeable future. And that is the key right there. “Interest rates are high right now and I think they will go down in the future” is the story that a lot of buyers are telling themselves and hoping for a brighter future. They are betting that things will be better later and deciding not to act. Is that a smart wager? Time will tell!
#2- Most buyers are also sellers. I would like to buy, but in order to buy, I have to sell. Okay, that makes sense. But what if you can’t sell? Or you won’t sell without the promise of getting exactly what you want? Or you can’t sell for enough to get what you want next? Welcome to most folks’ dilemma in 2023! I want to move, but it’s complicated and uncomfortable. What do I mean by uncomfortable? The reality was, that in 2023, if you wanted to sell your house so that you could buy a new one, you likely had to commit to selling your house first and then buying. And that is uncomfortable for most homeowners. So uncomfortable in fact, that they just decided to do nothing. I made a video about this last fall with the idea that “a buyer’s market is not actually good for a buyer, if that buyer is also a seller”. A buyer’s market is much less efficient than a seller’s market and we saw the end result of that inefficiency play out last year.
#3- Prices and affordability. This topic is somewhat tied to interest rates because those impact affordability based on a buyer’s income level and available down payment. Higher interest rates lead to lower affordability as a homeowner is forced to pay more interest on their loan. Thus, affordability declined in 2023. What happened with prices? Well, sales were down about 30% from expected. And buyers couldn’t afford to pay as much. And sellers were having a tough time selling. Prices declined of course! Right? Wrong.
Our next big topic: prices. Duh. It’s at the top of everyone’s mind. Prices are the single most talked about statistic in the real estate world and I wouldn’t dare deprive you. Starting off with an absolute stinker of a month in January, prices rose steadily to April, levelled off, started to decline through the summer and then we had a bit of a shocker as the average sale price in December popped up a bit.
I would argue that this chart defies logic given the above discussion points. How can the average sale price not have fallen off a cliff given the lack of active buyers? Even from the high point in May at $666,975 to the low point in November at $594,389 that only represents a drop of 10~%. And technically, we had a gain of about 10% from the start of the year to the end.
Here’s what happened: sellers were not feeling pressure. Plain and simple. They won the battle of prices in 2023. Couldn’t get the price you wanted? Oh well, wait it out or take it off the market. If Sellers had been facing more dire circumstances, you can bet your ass that prices would have declined a lot more significantly than they did.
This is a fair statement to make at this point: Sellers have not been pressured or forced into selling their homes (for any reason) on a scale large enough to impact the market significantly. And I will stand by that statement through 2024, 2025 and beyond.
But Cam, what about all the people who have to renew their mortgage this year? What about all the people that bought last year and their home is worth 20% less in today’s market?? Sure, there are some homeowners that are facing difficult situations. But not nearly enough to move the needle in the housing market. Will this change? A lot of people believe there will be an increasing number of cases where homeowners that are up for mortgage renewal will be selling their home rather than following through with a renewal.
I don’t see that happening. Banks are already doing everything they can to keep homeowners in their homes by relaxing requirements on renewals. In fact, the federal government brought light to this when they announced the “Canadian Mortgage Charter” which was in fact, just a set of guidelines that the government would like banks to adhere to, but were not required to. Regardless, it is important to understand that stakeholders at all levels are trying to avoid a scenario where countless homeowners have to walk away at renewal.
As mentioned above, plenty of other statistics that I like to keep an eye on would indicate that we have been in a “Buyer’s market” for much of 2023. While that didn’t lead to an increase in number of sales or plenty of buyers jumping into the market. What this did mean was that any buyer who did want to participate in the market, by and large, they had a much easier time acquiring a new property than buyers in years past. Very few homes, especially in the after April and May, were selling multiple offers. Many homes were sold conditionally and for under list price. If buyers had any issues with how homes were sold during the frenzied years of 2017 or 2021, wherein most homes were sold via “bidding war”, then 2023 was their opportunity to avoid all of that fanfare. How long will this opportunity last in 2024? That remains to be seen. But a message to buyers: you can’t have your cake and eat it too. If you want an easy time buying, then buy when nobody else is. If you want to buy when you have certainty, or when rates decline, then be prepared to face plenty of competition and increasing prices. We have seen that these are your two options.
Other topics that warrant mentioning from 2023 but for which I will address in the future: new home construction. Government interventions. Rules for Realtors. And plenty more. Yes, I have ideas as to what I think will happen in the real estate market for 2024. I don’t have a crystal ball but I like to think that I spend sufficient amount of time educating myself on the topic to form an opinion. And I will gladly share that opinion in the coming weeks!
Thank you to everyone who has made it this far. I look forward to a year of blogging, commentary and insight in 2024. Talk soon!
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