Housing Market Correction in Toronto & the GTA: How Long Will It Last?

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Housing Market Correction: An Overview of 2022

For the past few years, Canadian home prices have been soaring. Following the onset of the pandemic in 2020, the Bank of Canada lowered interest rates to near-zero in order to jumpstart the economy. The outcome, as we all know, was that this policy also led to the overheating of already hot real estate markets across the country.

This year, in an effort to correct the inflationary effects of COVID-19 stimulus programs, the Bank of Canada raised interest rates by a total of 400 basis points from March 2022 to December 2022. That’s 4.00% in less than a year!

This increase in rates has made it more difficult for Canadians to qualify for mortgage loans and has thus served as a “correction” of the housing market. Since the start of the rate hikes, property prices have dropped to varying degrees across the country. This is especially true in urban markets such as Toronto and Vancouver.

For many consumers, increased interest rates have made qualifying for a mortgage more difficult and less financially feasible despite dropping property prices. This has led to a drop in demand for property purchases across the country, allowing homebuyers to negotiate lower prices.

Unfortunately, the decline of the buyer’s market did not put an end to the supply-demand discrepancy facing the Canadian market. Instead, we have seen the Canadian housing space shift from a buyer’s market to a renter’s market. As 2022 progressed, rental markets across the country grew hotter and hotter, eventually leading to the overheated, bidding-war ridden rental marketplace we have today. For more information, check out our guide on buying vs. renting in an overheated market.

With mortgage qualification being harder than ever, and rental rates rising higher and higher, many Canadians find themselves in the midst of the worst housing affordability crisis in recent history. Rates have risen, prices have dropped, but only slightly, and inflation has not yet been curbed. Given the current market conditions, many Canadians are left wondering how to proceed. Is it better to buy a home now, while prices are low, or to wait for 2023 to hopefully be able to lock in a lower rate?

When is the Best Time to Buy a Home...

When deciding the best time to buy a home, there are a number of different factors to consider. Some homebuyers will try to minimize the purchase price of their property. Others, are looking to save on their interest rates. Regardless of your preferences, here are some tips that you might find helpful when timing your home purchase.

… If You Are Looking for a Low Property Price?

While interest rates may be soaring, the good news is that property prices are dropping. If you are a homebuyer with a sizable income and strong credit history, you may not be worried about the current mortgage qualification requirements. Instead, you may be looking to lock in the lowest sale price you can manage.

While prices may be low right now, there may still be some time left for property values to fall even lower. In fact, RBC forecasts a 14% drop from the most recent peak in the benchmark house price by the beginning of 2023. However, it is important to note the risks of this strategy.

While a drop in price may appear attractive, it is important to ensure that the increased mortgage rate you incur may not necessarily cancel out your price savings. The best way to lock in a low rate and save yourself from long-term losses is by comparing rates from multiple lenders and finding the lowest rate the market has to offer. In that regard, Clover Mortgage can help. We work with a network of over 60 different lenders and can help connect you to the lowest rates that are available to you, even within the current market.

… If You Are Looking for a Low Interest Rate?

If you are waiting for a drop in interest rates before investing in a home, you are not alone. While rates have been rising all year, it is expected that they will not raise any further in 2023. The Central Bank has hinted that a rate halt might be in-store for the first 3 to 4 quarters of 2023, after which we hope that rates will start to decrease. We’ve already seen Fixed mortgage rates decrease in December due to the decreasing bond yields. As at December 13, 2022, there are 5-year fixed rates as low as 4.79% when it comes to a high-ratio insured purchase.

To stimulate the economy and prevent a deeper recession, the Bank of Canada will eventually start lowering rates again. The Bank of Canada predicts that rates won't start to fall until 2024, once inflation has sufficiently decreased. However, if the economy declines more severely and quickly than expected, the Central Bank may lower rates in 2023.

Regardless of the current market rates, Clover Mortgage can help you find the lowest rates available. Check out our guide on interest rates for more information.

Predictions for Canada’s Housing Market in 2023

After the recent interest rate hike, homeowners may be concerned about how much higher rates will go. Both fixed and variable rate mortgages will be affected by these changes in interest rate and bond yields. The Central Bank of Canada is working to slow the economy in order to combat inflation, which will be challenging for many individuals. However, a prolonged period of higher interest rates is necessary for low inflation.

Eventually, the Bank of Canada will begin to decrease rates again to stimulate the economy and prevent a potentially bad recession. This means lower mortgage interest rates. However, rates are not anticipated to decline until early 2024 when inflation has eased. The Central Bank may decrease rates in 2023 if the economy contracts more than expected. When rates start to rise again, home prices are expected to increase steadily.

In addition to interest rates, other factors such as high rental prices, low housing supply, and a projected influx of 1 million new immigrants to Canada in 2023 are also impacting the housing market. These factors indicate a potential future boom. In fact, the Union Bank of Switzerland recently released their Global Real Estate Bubble Index 2022 report. In terms of cities with the greatest housing bubble risk, Toronto was ranked number one in the world, while Vancouver came in at number six.

The good news is, regardless of the current market conditions, there are always going to be options if you are interested in purchasing real estate. Here at Clover Mortgage, we can help you compare a variety of mortgage and mortgage rate quotes until you find the perfect lender for you and your needs.

Contact Clover Mortgage to schedule your free consultation today!

Steven Tulman
Written By Steven Tulman
“Making the process of getting a mortgage an easy and enjoyable experience for every Clover Mortgage client!”