I think everyone understands that the Ottawa real estate market is a much different landscape today than it was in February. The current prices feel similar to where they were last year without the bidding wars. A few people have asked if I think the market is going to crash or if there will be a correction. Well, the correction is already happening and I don’t see it going much lower depending on interest rates. Right now I am feeling a very close connection between prices and interest rates. More so than usual. Interestingly a home in March was purchased at a much higher price but way lower rate and it is quite comparable on a monthly payment to a similar home in today’s market selling at a lower price but with a much higher interest rate. Essentially affordability has not changed too much. Ottawa is weathering the drop in prices better than other market centres in Ontario. I expect the latest rate increase of 100 basis points which is the largest since 1998 to slow our market even further over the upcoming few weeks. I do think that the proposed hike in September will be lower than they have forecasted because the market has reacted and will continue to slow as a result of the Bank of Canada’s decision. Again, Ottawa will not be impacted as much as other major Canadian cities.
What are the main reasons for the price drop?
No matter what you seem to be doing, everything is more expensive! Combined with the rising interest rates that were brought in to curb this and the already high real estate prices and you have a perfect storm. Buyers can not simply afford the price gains we have been seeing. With the interest rate hikes, many have been priced out of the market. Then you get a looming recession and all the doom and gloom media coverage. The Ottawa market has never changed so fast in its history. 5 months has pretty well wiped clean the previous year’s gains. We also don’t have the pandemic-driven demand anymore.
Buyers are taking the wait-and-see approach
Buyers are engaged in the market and are looking at homes that are priced well. If sellers are priced at yesterday’s market they are not getting any activity at all. Buyers are also very much on the sidelines taking a wait-and-see approach. Many are trying to determine if they should wait a few more months as prices have been declining or lock-in on something now before interest rates move up more. Affordability could end up being the same.
What is the strategy to sell now? Hold offers?
It has been interesting talking to other agents about this and pricing strategies. For the most part pricing for multiple offers is not the desired strategy right now. Price the house well and get buyers through and sell it the traditional way. Some more patience is required as homes are staying on the market longer. With more competition, the way you present your home will be even more important as will your representation.
My thoughts on the market
My home has lost quite a bit of equity in the past 6 months. However, I have no plans to sell for 20 years so I really don’t care too much. Everything will go back up again eventually. I truly believe this correction was very important to the overall health of our market.
This is exactly where Ottawa needs to be right now.
The market has really changed drastically in the past 4 to 6 weeks. This is the fastest I have ever seen a market shift in my career.
Why has the market shifted?
There are really several factors at play right now. Interest rates have been steadily rising through the first half of this year. This of course is going to have an impact on the affordability of homes for buyers. Inflation and the cost of everything else have gone up and this leaves households with less money available for housing. Talk of a recession, the war in Ukraine, buyer fatigue, and the trillions of lost value in the stock market. These are all some of the factors involved. I also see the negative news that an imminent bubble bursting could happen with prices. Negativity tends to be news that sells. This certainly has an impact on qualified buyers and their reluctance to get into the market now. I don’t necessarily blame them either.
What should a seller do now?
What is not reported is that Ottawa is still in a sellers market. Sellers just don’t have the extreme leverage in the market that we have been accustomed to seeing. They need to be more realistic about the market they are in right now. Homes are not selling as fast and in many cases, buyers have conditions to fulfill. This is not necessarily a bad thing on either side. Sellers will adjust their prices to the current market and have to be patient as it’s taking longer to sell their homes. Houses are off their peak value but holding out for yesterday’s prices will not do any good.
What about buyers?
For buyers, there are more houses to choose from and better value out there right now. The challenge with buyers is timing. Many buyers have pulled back because they don’t want to buy near the peak of the market. Some are betting that the market will continue to decline and they will buy at a lower price. If there’s one thing I’ve learned in my career and as an investor. Never try to time the market. It just doesn’t work. This is advice from Warren Buffet. There is good value out there now and I believe the long-term prospects of Ottawa‘s market are good. This advice is only applicable to buyers not speculating in the market. If they are looking long-term I think now is a good time as any.
There’s a lot to navigate in Ottawa‘s real estate market right now. If you want to know what’s happening in your neighbourhood please feel free to reach out to our team.
The real estate market has shifted. There is no question we are not in the extreme seller’s market we experienced in February. Prices have slightly retreated from the peak. One of the biggest differences I am seeing is that buyers have been much more cautious. The recent interest rate hike and announcement of more coming have certainly played a major role. We have also seen an influx of new listings in Ottawa that is taking some of the pressure off the market. In addition to the new homes, we have sellers that want to keep trying to get prices that were out there a few months ago. So we see on the MLS lots more options. With the increase in inventory, buyers feel that if they don’t secure one place they will have an opportunity at another. They are also being spread out more with their offers.
Now that sounds a bit gloomy for sellers but it is not a reality statistically. We are still in a very strong seller’s market. It is just now one grounded in a sense of reason! Price escalation is tempered. Realistic sellers can expect to get great prices that they could have only dreamed about 2 years ago. The average sale price of a residential home is still up 11.6% and the average price of a condo is up 11% over April 2021.
Firstly, I am someone who is totally behind choices for consumers. I just want the public to understand some of the choices they have. We are hearing lots of ads on the radio about the company Unreserved. They want to disrupt the real estate industry. They have been in our market center for a little over a year.
This is the slogan from a recent ad from the company Unreserved “Here to empower buyers”
It is a good slogan but what about sellers? Unreserved clients are in fact the sellers of the transactions, not the buyers. How are they empowering their seller clients who are paying them by making the process less expensive for the empowered buyer? The transparent auction is much more advantageous for buyers. So much so that the government wants to ban blind bidding because they fear prices are getting too high as a result. They want to empower buyers by getting sellers less money? When you are selling your largest financial asset and have a lot of money at stake would you want to sell using a platform that is designed for buyers? Essentially to make sure buyers don’t overpay. I know I would not.
Don’t get me wrong. If I am a buyer I would much rather be in an auction and see the prices as they go. It is a more transparent process, no question. However, if I am a seller I am trying to maximize through the current blind bidding process. It is the best way to sell a house in a sellers market like the one we are currently experiencing. I am still having trouble seeing the value proposition this company is offering sellers. Just my opinion. I was just looking through one of their listings and they had a picture of the house with massive snowbanks in front of it. It is MAY! They are a very well-funded company so they are in no rush to be profitable but it will be interesting to see if they are able to take the market share they need to survive.
If I was a consumer looking to save money I would use a limited-service brokerage. At least it is regulated in the business. Auction companies are not.
Here are a few other things to consider with this process:
• If an auction goes badly, consumers have no one to complain to. There is no independent body to complain to and no penalties in the event a consumer feels they were treated unethically by an auction company. In my industry, we have a strict code of ethics with massive fines if they are not followed.
• There is also really no deal until an agreement is formalized after the auction. Not like a traditional bidding process with Realtors® where agreements are signed and submitted to the seller for them to select the best option. So when they sign it is a legal document.
• Owners of real estate auction companies are not vetted for past criminal or fraudulent activity, which matters if they are helping to manage someone’s life savings. In fact, this particular owner has had a conviction for fraud in past business dealings. As I mentioned choice is good. However, they should be playing by the same rules with the protection of the consumer at the forefront of the transaction.
Gordon Gecko would certainly have you believe that greed is good!
My philosophy is that you want to absolutely maximize as a seller and be a bit greedy but also diligent that you do not put yourself in a position where you will end up with less. It is a balancing act that I believe we at the Chris Scott Team seem to have mastered. I am confident we are putting our sellers in a position to maximize in this market. Footage of our clients leaving our office last week after a big offer during their presentation.
Seller Scenario: (disclaimer this is not a CST client)
This is a seller in Stittsville that came to market and got solid offers but did not get what they wanted. I think they are being a bit greedy here. Let’s look at the facts:
Let’s start with the upfront costs of a purchase before examining this scenario. When purchasing real estate an investor is typically putting up the down payment of 20%. The benefit is that when the market rises you as the seller get the return not on the down payment but on the entire appreciation of the asset. So let’s use this example for easy math. This is an actual home listed in March of this year:
This house was purchased for $800,000 a year ago. They just closed on it with the builder this year.
Down payment: $160,000 (estimate)
Listing price 2022- $999,000
Offer received and rejected: $1,200,000 (yes a 400k 12-month appreciation 33k/month was turned down)
It was slightly short of what they are looking for. They wanted 1.250M. They relisted a few weeks later at the same price and got the same result! This is not a client of ours but someone should be advising them that they have hit the jackpot and it is in their best interest to take this offer. At 1.2M the house was well above the comps.
To be clear the one year the return on their original $160,000 was well over 300%
I would be absolutely ecstatic! Right!
For them they are not getting the sale prices they expected. Now I am not against this strategy at all. I am seeing many sellers raising their prices after offer date to their desired price. But what is happening is now all those listings that did not sell are still on the market while new listings come to market this week. What will eventually happen as more comes to market. In the case I outline above I actually think they may end up with less than what they just got offered. Time will tell on that and I will happily update this blog with the results of that.
WHY ARE SELLERS WALKING AWAY FROM SOLID OFFERS:
Sellers are listing well below what they expect to get for their properties. In many cases, they are listed 100k-300k away from where they want to end up. When offer day rolls around they may only have offers that underwhelm their expectations. Keeping in mind that expectations right now are sky high!
These expectations are based on comparing their homes to others sold 6-8 weeks ago when there was absolutely no other inventory available on the market.
Things are getting interesting out there right now with so many variables at play. There has never been a more important time to have expert advice and interpretation of market trends.
Do you know one of the most common questions I’m getting right now about the real estate market is, are we at our peak? Or is the market starting to decline? It’s a tough question to answer because there are a lot of variables at play right now. We have interest rates rising by a half percentage point in the upcoming few weeks after a previous increase of a quarter of a percentage point just about a month ago. This is going to make the current prices in Ottawa that much higher for prospective homebuyers. This will certainly have an effect on what buyers are willing to pay for Ottawa real estate. My thinking is that house prices are going to stabilize. In fact, I believe that’s already happening. There are houses that sold in February of this year that would not warrant the same price in today’s market. The biggest reason being is that there are more houses for sale and buyers are spread out with more options available to them. My prediction is that you’re going to see continual stabilization of the market in the upcoming two months as more inventory comes to market I still think it’s going to be very much a sellers market but the days of 15 or 20 offers on almost every property I think are going to be behind us which is good for the overall health of our local real estate market.
We are up from the five-year average for total unit sales, which for March is 1,792. Prices are continuing to climb slightly, up 2-3% from February, sitting at $853,615 for a residential-class property, up 12.5% from last year, and $479,405 for a condominium-class property in March, up 10% from March 2021.
Overall, we are just slightly over (.6%) a half month’s supply of inventory, this is still considered a seller’s market. A balanced market requires at least four months of inventory.
Our team has strategies that can help both our buyers and our sellers in this type of market. Please reach out if you have any questions about the current market or anything else we can help with.
Things are picking up as we head into the Spring season. We have seen a 52% increase in transactions from January to February of 2022 via MLS. This is a strong indicator that the Spring market has sprung.
The number of new listings in February (1,762) offers some hope for prospective Buyers. At 4% higher than the five-year average and 12% higher than February 2021, it resulted in an almost 10% increase in residential-class property inventory compared to last year at this time.
There is hope that the trend of increased new listings will continue so that the housing stock can be replenished.
We are now sitting at less than a month’s worth of inventory, which is still looking like a seller’s market. This means buyers need to have all of their financing set up so that they can move quickly in this market.
Our team has strategies that can help both our buyers and our sellers in this type of market. Please reach out if you have any questions about the current market or anything else we can help with.
We recently took a listing in a building where 3 other identical units were up on the market at the same time. These units had all spent considerable time on the market. Of course, our sellers were concerned that they would be unable to sell.
Our sellers were open to staging the home and already owned some lovely décor and furniture items that we were able to add to, creating a magazine-worthy property. Having sellers trust in our process gave us a huge win. Our sellers and our team prepped the home including bringing in a couch to make it shine. This combined with our listing strategy made all the difference. Our listing was up for a matter of hours and sold after the first showing. It matters who you work with!!
We are starting this February in very much a similar way to the last 2 years. Housing inventory in Ottawa is scarce and sellers are cashing in on this once-in-a-lifetime market. This year feels different because we are already starting with high prices thanks to the last few years of double-digit increases in Ottawa home prices.
Buyers seem to be comfortable paying huge premiums to get in on the market and secure their house. This is leading to some pretty eye-popping sales in certain neighbourhoods. We have had first-time home buyers spending upwards of a million dollars on a purchase. It is actually a frustrating market for a Realtor because there is quite a bit of heartbreak! Sellers in many cases can’t put their house up for sale because they can’t secure another property. So we are in this cycle! I am hopeful that we can get to a place this year of a more balanced market. I had originally predicted that prices would rise less than 10% this year. Is it too early to have a mulligan on this?
One of the biggest changes in our market is the number of properties selling for over 1M. Do you remember when 1M was a big number?
Sales in Ottawa over 1M
2020
2021
2022
We have had one of the hottest real estate markets in the world in the past few years right here in Ottawa. We are making up for years of undervalued real estate. Now we are heading to a place where the average house is going to be out of reach for our middle-class families, especially those who are not in the market already with a house.
I wanted to revisit this comparison that we did back in 2018. I thought it would be interesting for us to again compare prices in GTA vs Ottawa to see where we sit. Toronto has always been among the highest real estate prices in Canada and North America. Ottawa however is starting to close the gap. For this comparison, we wanted to find very comparable homes in each city. We dug a bit deeper and wanted to make a direct comparison with something in a similar suburban-style community in each city. The easiest way to accomplish this was to find something built by the same builder, in this case, Mattamy Homes.
I used the suburban communities of Pickering in the GTA and Stittsville in Ottawa.
VERDICT: There is still a price gap between these properties. My prediction last time we ran these comparisons was: “I really think that if a buyer in Toronto is willing to pay those prices right now it is only a matter of time before Ottawa gets to that level. I have said it for years and I believe now people are starting to realize that Ottawa is a very undervalued real estate market.” I have to say that I think I was fairly accurate on this assessment considering our market over the past few years. There is still a gap in prices between Ottawa and Toronto. In 2018 the divide was $374,000 more for a similar GTA property. In 2022, four years later, the divide has narrowed to $273,000. We will run this in another 4 years. My estimate is that Ottawa will be even closer to Toronto in price. Always fun to compare.
