As an existing homeowner, a move-up buyer, or first-time buyer looking to dip your toe into the Canadian real-estate market, it can be daunting to decide if now is the right time to start a remodeling project in preparation to sell, or to make your existing home fit your style or needs. Moving up into a fixer-upper can cause other concerns. Interest rates, at historic lows for two decades, have risen at record rates and paused. Will it stop? Should you wait 12-18 months or longer to rip the kitchen apart?
We dig a little deeper to find out what current housing market indicators mean for someone thinking of
renovating or expanding their home.
Here to offer expert advice are real estate broker and market analyst, Daniel Foch, who offers extensive knowledge of the GTA and Canadian housing markets; veteran economist with Bullpen Consulting, Ben Myers, who provides insight into the economic factors affecting the industry; and Jim Cunningham, founding partner at Eurodale Design + Build, who specializes in large addition and renovation projects in Toronto.
What is the biggest change you have seen in your industry segment/business over the last 12 months with respect to housing prices and market forces?
Ben Myers (BM): The biggest change over the last year is the increase in interest rates. This increases the monthly carrying costs for end-users, pushing them into lower-priced housing to be able to pay their desired monthly rate. Also, many investors purchase new housing with the intention of renting the property, and higher rates eat into the little cash flow that existed at occupancy, and discourages purchasing. There remains demand for new condominiums that won’t be completed for four to five years, but at price levels that are equivalent to late-2021.
Jim Cunningham (JC): Much of what we do is for the homeowner directly. Less inbound leads and sale transactions are happening in the 416. House flipping has stopped, and infill developments have slowed, too. I have noticed a lot more trades looking for work. The last two years, it was almost impossible to get a trade to the site. Now, it’s the polar opposite. Supply chains are catching up as well, which is helping. Materials prices are still steep, but steady.
Daniel Foch (DF): Easily the biggest change is the monthly mortgage cost and the related payment required to buy or own a home in Canada. The lengths that people are willing to go in order to buy a house and get that payment – cosigning, mortgage fraud — is now a rampant issue.
Do you believe the current housing trend is similar to 2008 and 2017, when things bounced back here in Canada within the following 12 months?
BM: The data in Canada and the U.S. suggests inflation is slowly trending downward, and the Bank of Canada has stopped hiking rates. There appears to be some optimism in the re-sale housing market in the GTA due to the flat rates. My expectation is a relatively flat market for two to 2.5 years.
JC: There are a number of different things happening right now globally that puts us in a different place than in 2008 and 2017. One move left or right and we could be in this for a lot longer than anticipated. Let’s see what happens with the American dollar and its reserve currency status. We are in lockstep with the U.S.
DF: I think that we’re already seeing the corrective impacts of higher rates in the market based on current prices. Prices have dropped 20-30 per cent year-over-year in some parts of the GTA. Affordability is beginning to trend in a positive direction, and typically continues to do so until a recession comes and goes, which should be expected in Canada this year.
Do you believe we may find ourselves entering a more prolonged pullback similar to the late-1980s/1990s?
BM: I don’t expect a five- to 10-year housing slump. Toronto employment numbers remain very positive, immigration is at record levels, and Toronto is one of the most desirable cities in North America. With that said, I still expect interest rates to remain elevated (in comparison to the last 10 years), which should take some of the speculative pressure off the market, remove some of the volatility and the boom/bust cycles that occur.
JC: It’s hard to tell. Again, I point to the global geopolitical uncertainty risk to our economy, from war to the American dollar. The Conference Board of Canada suggests we have a 95 per cent risk of slipping into a recession in the next 12 months. Those odds do not seem too good or suggest we will be pulling out of this soon.
DF: I do think we are facing a prolonged pullback. I believe the setup is very similar to 1989 for the following reasons:
- Record population growth (1.81 per cent in 1989 – record was broken for the first time this year)
- 3x increase in capital costs
- Severe unaffordability
- Steep drop in house prices
- Looming recession
I think Canada is facing some serious headwinds, a potential recession, declining GDP per capita, high household debt – these could all become problems over the next 12 months.
The last word:
As we wrap up this article, we’d like to acknowledge the valuable insights and predictions provided by our expert panellists. However, no one can truly predict the future. While the past can inform us and trends can guide us, there are always unforeseen events and variables impacting the housing market in unpredictable ways.
Ask your local realtor what renovations carry the best long-term return on investment, just in case you need to wait before you can recoup the financial investment. Remember, there is real value in working with professionals when looking for a home, redeveloping your existing property, or investing in a larger development. What do you think the near future will bring? Join the conversation with @EurodaleHomes!
And remember, if you are living in the space, regular maintenance and enjoyment value are true intangibles that cannot be discounted!