Is the Ottawa real estate market softening?

What is the future of real estate in Ottawa? Should I buy now or hold off? How will interest rates impact the value of homes? My clients are asking these questions, and rightfully so. The real estate market in Ottawa and beyond has been on a wild ride these past two years.

Although homes, especially homes in Ottawa, have consistently appreciated, the market has been on fire since the start of the pandemic. Multiple bidding wars, homes selling far above asking price, conditions a thing of the past - these are all now common practice. What is causing this? And, perhaps the better question, will it continue?

Let’s look at some of the factors influencing this:

Low Inventory

The truth of the matter is that there are simply not enough homes on the market to satisfy the demand. This, combined with low interest rates and the ability for many to work remotely, has created a flurry of activity and a very competitive home buying process.

It is not uncommon for buyers to find themselves competing with multiple other bidders in the hopes of securing a home. We are finding this is starting to soften, however, homes are still being snapped up quickly and typically are continuing to sell over asking.

In March of 2022, the year-to-date average sale price for a residential home in Ottawa was $831,122 and $467,915 for a condominium. These prices represent a 14% and 13% increase respectively from just a year ago!

It is forecasted that the limited supply of housing in Ottawa will continue to put pressure on housing costs through 2022.

Federal Initiatives

The federal government is acting to curb home prices nationally with policies to increase housing supply. This will include funding to municipalities to fast track building permits and encourage new construction projects, as well as funding for new affordable housing initiatives. This, however, is not a quick fix. The government has committed to doubling the number of new homes each year over the next decade to help meet the supply gap of 3.5 million homes in Canada.

Inflation and Interest Rates

In a bid to curb rising inflation, the Bank of Canada has claimed it will continue to raise interest rates and that Canadians should “expect interest rates to continue to rise toward more normal settings.”

Canada’s overnight interest rate rose to 1% in mid-April, and it has been suggested that Canadians could see another rate increase by 50 bps in June.

According to Bloomberg Economics, the overnight rate is forecasted to range from 1.75% to 2.75% by the end of 2023. However, as we could see the rate increase to 1.5% by June 2022, the latter case is likely the most realistic scenario.

That being said, to qualify for a mortgage, home buyers already have to pass a rigorous stress test at 5.25%. Therefore, this will not necessarily reduce a prospective home buyer’s purchasing power.

In addition, we could see a flurry of activity this spring and into the summer as buyers lock in interest rates before more hikes come. Basically, if you have a great rate locked in through your bank’s pre-approval, you might want to act sooner than later to take advantage of it.

What does this all mean?

Over the past two years, home owners in Ottawa have seen tremendous appreciation in the values of their properties, while prospective home buyers have been often met with frustration trying to get into the market. Will this continue at the same rate in 2022 and beyond? Not likely. That being said, there is still tremendous opportunity for both sellers and buyers. With limited supply, home prices in Ottawa will likely continue to rise throughout 2022. However, as the world emerges from its pandemic lockdowns and we slowly return to ‘normal’, home buyers will likely find purchasing a home becomes a little easier. Let’s look forward to a more balanced market, and the opportunities that lie within it.

To chat more about real estate, let’s get in touch.