The economic environment is gradually turning unfavorable for the Canadian housing market. According to experts, the Canadian real estate market is about to experience the largest downturn and slump in 40 years.
As per the Financial Post, home sales fell by 12.6% in April, according to data from the Canadian Real Estate Association, a month after the Bank of Canada issued its first post-pandemic rate rise of 25 basis points, or 0.25 percent.
What can one predict as the aftereffect of the falling Canadian home prices for Canadians? Should they buy, sell, or invest?
In this article, we will explore what’s next for the Canadian housing market and how real estate developers have the chance to adopt innovative solutions in construction drawings and BIM services as they navigate through these changes.
Canadian Real Estate Market: An Overview
For Canadians, the status of the Canadian real estate market is a never-ending concern. Since the beginning of the COVID-19 epidemic, home prices have been increasing faster than inflation, further exerting strain on housing affordability.
This has sparked a new discussion over whether the Canadian housing market is in a bubble. If so, there is a danger that when it ultimately bursts, house values may see a bigger, unpredicted decrease, which is unsettling for homeowners, but especially so for potential purchasers.
The fact that experts have been debating whether there is a Canadian housing bubble for several years should serve as a caution that no one is certain of what the appropriate Canadian housing prices should be.
We will deep dive into what transpired in the Canadian real estate market to cause this economic downturn and what can we expect in 2022.
The Shifting Landscape in the Canadian Housing Market
Over the last few years, we have discovered that there are at least two significant factors that affect global house prices that have received less attention than they should have.
Population increase is the main force. It goes without saying that the inability to provide enough homes in Canada will result in pressure on house prices to rise.
But even if we were to create just the necessary number of new homes to satisfy the growing demand, Canadian housing prices would continue to rise.
Time is money, which is why prices are increasing. Each new homeowner moves a little bit farther from the city center than the previous one as a city’s population increases and new housing is built in the suburbs.
The distance and time spent on crowded roads or on public transportation on the way downtown tend to increase slightly. Over a lifetime, that can amount to a sizeable sum.
Very low-interest rates are the second factor that affects housing prices in most other nations. Low mortgage rates enable more individuals to purchase homes earlier in life, increasing demand and pushing up the price of existing properties.
Let’s focus on the Canadian real estate news and what they have to say about homeowners and homebuyers.
Housing affordability is being impacted by rising rates. RBC’s aggregate affordability indicator may likely reach its lowest level ever nationally by the time the Bank of Canada is through, with Vancouver, Toronto, Victoria, and other pricey regions leading the way.
As a result, we observe growing downward pressure on demand in Ontario and some areas of British Columbia. Thanks to relatively good affordability starting points and weaker interest rate sensitivity, things will also become more difficult in other areas of Canada, but to a lesser extent.
In every part of the country, stretched-out purchasers will be hampered by higher mortgage stress test qualification rates. Additionally, higher customer rates will limit the amount of a mortgage and the maximum purchase price that eligible borrowers from coast to coast may get.
The investment circle: what can we expect?
Given that the Bank of Canada expects to keep swiftly hiking interest rates, it would undoubtedly feel like the correct moment to sell for investors.
The Canadian housing market news will have more news to sell as things can take another turn if individuals are compelled to sell in case the prices start to drop significantly.
As of right now, the Canadian real estate bubble is not causing homeowners to sell their homes because of changes to their variable rate mortgage, which is unlikely to happen. Some investors with substantial leverage may decide to sell due to the higher mortgage payments.
Whether investors will make money if they sell today is totally dependent on the region in which they made their first investment.
What about the buyers?
The current issue, according to Canadian housing news, is a lack of Canadian purchasers. The sharp rise in mortgage rates which have more than doubled in only 10 months has caught people’s attention. They consider waiting for things to improve.
People who are considering buying a property immediately learn from their study that prices are currently dropping. No one wants to purchase a home, since if they wait, it will cost much less in a few months.
Who will it affect the most?
The Canadian housing market will impact everyone. There was a lot of worry about affordability, and it’s possible that rising rates the rest of the year will put a lot of pressure on Canadian homebuyers and homeowners. These rising interest rates are anticipated to cause asset prices, including those of equities and real estate, to fall.
According to Canadian Mortgage Professional (CMP) magazine and their interview with Drew Donaldson, it was concluded that Toronto will be less affected than small towns and second home properties, but there is still cause for concern because those who are purchasing, refinancing, or have a mortgage renewal coming up will pay significantly more for their mortgage.
Although Donaldson repeated his long-term confidence about the future of the Toronto housing market, asset values in both equities and real estate are anticipated to decline as a result of those increasing interest rates.
What is undeniable is that an increasing portion of Canada’s economy, which may not be healthy, is made up of real estate and an expensive housing market.
Creative solutions and rethinking strategies
As they plan to move uninterruptedly toward the end of 2022, Canadian real estate firms are revising their approaches. While many people are hopeful about their futures, they are also keeping a careful eye on several variables that are causing change, including the effects of a changing workplace, issues related to environmental, social, and governance (ESG), as well as growing prices and competition.
Real estate firms have the chance to adopt innovative and digital solutions as they negotiate these and other business constraints, such as the rising worry about housing affordability, to remain ahead of the problems and plan their growth plans.
The likelihood of the market returning to its pre-pandemic levels is low. Since the US bubble burst during the 2008 economic crisis, some experts have projected that the Canadian housing bubble will as well, although this hasn’t occurred yet. Instead, the national economy’s importance on real estate has increased.
Real estate developers should adopt a more deliberate and business-led strategy by coordinating their digital investments with their objectives and results as a method to meet these big changes.
Other aspects of the transformation journey should be considered as well, such as potential process changes and building a data strategy to produce the necessary insights. All this ultimately boils down to adopting a more strategic mindset that increases efficiency while putting the company in a position to capture new business opportunities and drive development.
Being unique in the AEC industry might be frightening and especially at this time when the housing market is going through the biggest slump. Many companies are making an effort to use the most innovative techniques and solutions to navigate through this.
Whether organizations adopt it deliberately or in an emergency, nobody will ever argue that they preferred doing things the old-fashioned way.
Investing in the newest technology and outsourcing the construction drawings or other services is a decisive decision that may open a plethora of exciting options for your building projects, and financial strategy, and help you remain stable in the midst of this brick-and-mortar upheaval.
Browse our portfolio to explore how we’ve supported other Canadian companies. BluEntCAD uses the latest technology to offer a virtual yet realistic feel to your construction plan through construction drawings and BIM and Revit services.
Ready to change the construction game in Canada with our top-notch BIM services? Contact us now!