Deja Vu baby, welcome to the Matrix. Have you ever (as an adult) dove down the rabbit hole and thought “is this a simulation of some sort?” “Where am I REALLY?” Let’s not get too philosophical today, but you’ll forgive me for bringing up Deja Vu because I feel like I am experiencing exactly that as I write the report for our real estate market in May of 2024.
Deja Vu, same story, different day.
Today’s story: how about a carbon copy of the April 2024 market report. And I’m not just saying that to get out of writing this, because this will still be plenty long. I am completely dumbfounded at how similar the stats are for May compared to April.
I’m going to get the stats out of the way because they and the commentary on these stats are basically the same (until they’re not) as they were for March and April.
Average sale price: $652,567 (+.08% from April)
Number of Sales: 488 (481 in April)
Number of New Listings: 1047 (966 in April)
Here is where we get a bit of a difference. While the 488 sales in May were very similar to that of April and March, there is a discrepancy in the actual vs expected number of sales. The 488 sales in May make up 66% of the 10 year average sales for the month of May, whereas that number was 75% in both March and April. You could certainly make the argument that this indicates a weakening market.
Other statistics such as days on market, days to sell, sales to new listings ratio etc. didn’t change enough for us to revisit them here.
The last stat I want to mention is active listings, or available inventory. We hit a milestone last month: 1514 active listings at the end of the month. That number hasn’t surpassed 1500 since June of 2016. Months of inventory was almost 4. Both good indicators of a “buyer’s market”. Tell that to my buyer clients that either don’t see a home available that fits their needs, or face competition on every listing they write an offer for. But yet there are still homes that have been on the market for 100’s of days…
Now the real fun part of this month’s report: interest rates.
Yes, the BoC lowered their overnight rate to 4.75% last week and it was all anybody in this industry could talk about (and is probably still talking about). It was a very dramatic morning in our household as I waited with baited breath to see the glorious headline that arrive just after 9:45am on June 5th.
Now, I wasn’t excited for the reason that most people might think. The common thought is “lower interest rates will light a fire in the real estate market” and that might be true (discussion below) but again, probably not for the reasons that people think.
My excitement was because I still have a variable rate mortgage on my house and the payments on that mortgage have gone up 10 times since we moved into this house on January 26, 2022, something I never imagined possible, and this signalled some small amount of relief. How much relief? $111 each month, so far. But a lower interest rate means more of our payment goes toward repaying the principal amount of the loan each month as well. So that is why I was really excited.
Do I think that lower interest rates will lend fuel to the real estate market in Canada? Yes. Immediately? To some extent. Over the long term? Definitely. And here’s why:
A 25 basis point cut to the overnight rate does nothing in the immediate term for borrowers looking to take on a new fixed rate mortgage. Right now, most buyers are looking at fixed rate mortgages because they are quite a bit cheaper than variable rate mortgages. So, no relief there. It will take cumulative rate cuts, that may or may not happen this year, to affect bond rates which will then affect fixed rate mortgages. With lower fixed interest rates, affordability will increase, and as a result, house prices will increase as well (probably).
So what is really going to change in the short term? Buyer mentality. Everyone wants a deal which means buying at the lowest price possible. The first rate cut likely signalled that houses aren’t going to get any lower barring a massive recession or something catastrophic in the Canadian economy. Buyers are going to be motivated and I know that to be true because myself and other realtors have definitely been fielding more phone calls and inquiries since last Wednesday. Buyer mentality plays a huge role in our real estate market and it always will.
FOMO is a big motivator, trust me.
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