The Changing Market – What does this mean for BUYERS?

The real estate market is shifting – this is no secret if you’ve listened to the news in the last year. But what does this mean for BUYERS?

Prices in Oxford County peaked in Feb 2022 at a WHOPPING $877,000.

By December 2022, the average price was $609,000; or $707,000 for the “year to date” – a decline of almost 30%. It is important to keep in mind, however, that prices ROSE that much in just one year. If we go back to February of 2021, the average price then was $637,000. Our average prices in Oxford County only ever rose over $500,000 beginning in August of 2020. So the prices we are seeing now are fairly “normal” historically. Most buyers I speak with welcome the return to more stable pricing.

However – as wonderful as these price declines are for buyers – as interest rates have increased, your buying power has decreased.

The amount of money a bank will lend you is based on the amount of payment you can afford (based on your salary, downpayment and interest rates).  When interest rates rise, your approval amount is reduced.

Example: You can afford a $2,500 monthly payment

  • At a 2% interest rate, you can purchase a property up to $590,000
  • At 4% interest, the maximum budget for a property is now $475,000
  • At 5%, that budget reduces further to $430,000
  • At 6%, that budget is now $390,000

It is VERY important that you if you do not have an up-to-date pre-approval from a lender, you get one. Every single time the Bank of Canada raises rates, your purchasing power and approval may be impacted depending on how long your rate is being held for (typically a maximum of 3-4 months).

Also important to keep in mind- the interest rate you need to QUALIFY at isn’t the rate you will pay. In 2017, the Canadian government introduced a ‘stress test’ – a rule requiring lenders to qualify borrowers at the greater of the benchmark rate or the mortgage rate + 2%, to protect them from rising rates. So be careful if you’re using an online mortgage calculator to determine your budget – it’s always best to talk to a mortgage specialist. Ask me if you need recommendations of a local broker.

The Good news?

  • Prices should remain stable (if not decline further) from their peaks in early 2022

  • There is much more inventory to choose from (In Oxford County, we had 4.9 months of inventory as of Dec 2022, versus less than 1 in January 2022)

  • Conditions are back! Most buyers are able to include conditions of inspection, finance, and sale of property in their offer (like the good old days, when I started in 2010!) There are still some price points (especially under 700) where there are multiple offers, but above that it’s unlikely you will be competing.
  • You can negotiate – in 2020-early 2022, it was unlikely as a buyer that you were able to negotiate things like closing date, price, inclusions, etc. But as the market shifts more towards a balanced or buyers market, buyers have the chance to negotiate terms.

Overall, the market shift is generally positive for buyers, in that there is more choice, reduced prices and buyers are able to negotiate more favourable terms. However, this shift is certainly overshadowed by the rapid increase in rates which has ultimately reduced the average buyers purchasing power.

Send me a message if you’d like to chat further or have questions!