Sales and prices may be down, but today’s environment may be close to how things should have been without the pandemic boom
Three years after Canada’s housing market peaked on record-low borrowing costs, the mortgage market outlook has dimmed considerably – but that’s less a crisis and more a return to normality, according to a prominent Ontario-based broker.
Dwight Trafford (pictured top), principal broker at Rock Capital Mortgage and a 36-year veteran of the industry, told Canadian Mortgage Professional the home price declines seen in many parts of the province have resulted in valuations settling at levels much closer to where they should have been all along, well away from the pandemic-era distortions of 2020 and 2021.
A market finally behaving normally
Trafford acknowledged that the correction looks different depending on where you stand. Some regions north of the Greater Toronto Area (GTA) are still performing well, while the GTA itself has cooled considerably.
“To me, this is a fairly normal market,” he said. “Obviously, it’s geographical – there are hotspots. I know North Bay is still fairly hot as far as purchases, and there are some multiple offers going on up there, and the same in some of the northern areas like Huntsville.
“The GTA, not so much. Properties are on the market for a little longer, they’re selling for a little bit less. I think the prices have come back probably where they should be – I don’t think people are overpaying anymore like they were.”
Are comparisons to the pandemic housing boom unhelpful?
For Trafford, much of the gloom around the housing market stems from comparisons to the unsustainable pandemic boom rather than what’s actually happening now.
“Last year, that was the whole talk – sales are down 20%, sales are down 15%, sales are down 25%,” he said. “You’re not getting that much anymore. Now you’re seeing sales up a little bit based on last year or down a little bit, but that is normal.
“It’s very normal for a market to be up or down 5% or 10% year over year on any given month. There’s nothing that says ‘We’re on the verge of having a hot market,’ or ‘We’re on the verge of a collapsing market.’”
Buyers hold the leverage – for now
Homebuying activity remains somewhat muted in Ontario, perhaps signalling that not many buyers realize the advantages now working in their favour.
That’s part of the reason Trafford doesn’t see the market taking off in the months ahead, with little sign that rate relief is imminent.
“It’s a buyer’s market, which is a good thing, and buyers are getting a little slow to get onto that fact,” he said. “But I think eventually they will and we’ll see things picking up. I don’t see any really big increase in anything over the next year – not in interest rates either, by the way.”
The Bank of Canada has held its benchmark rate steady throughout the year to date, with speculation even growing that the central bank could be set for a hike in the months ahead if the war in Iran continues to push energy prices – and inflation risks – higher.
Renewals sting less than the headlines suggest
Of course, the recent cooldown has come with a big consequence for many buyers who purchased at the height of the COVID-19 pandemic: declining property values mean their homes “aren’t worth anywhere near what they paid for,” Trafford said, leading to lost equity and making refinancing difficult.
Still, fears of a huge renewal crisis have so far proven unfounded, and brokers have highlighted the resilience of borrowers in the face of elevated costs when they renew their mortgage.
Borrowers facing higher payments at renewal are adapting faster than expected, Trafford said. “Canadians, we get used to it pretty quick,” he said. “Four-point-five percent, historically, is very, very cheap. It’s higher than 2%, but good.
“When interest rates went from 2% to 4%, there was initial shock. And then, a week later: ‘Oh, I can get 4%? Well, that’s a good deal.’ They seem to react pretty quickly.”
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