Dear Clients and Friends,
Happy January! I hope you enjoyed a restful and restorative holiday season, returning to a New Year with optimism and energy to face the adventures of 2023!
As promised, I wanted to keep you informed regarding an overview of the real estate market through 2022, as well as what is forecasted for the year ahead. I hope to send more regular email updates (but don’t worry, I won’t overwhelm your inbox!), and please remember that you can stay tuned to ongoing news and information on my social media pages, which I’ll link below for you. Hope to see you there! In the meantime – get comfortable… this one is a bit long, but outlines a great deal of information about how we can make sense of what we experienced last year, and what we can expect moving ahead.
“In like a lion, out like a lamb” … though the month of March is often described in this way as harsh winter weather conditions transition to those that are more mild and moderate, the same rang true for real estate last year. The pace started off fast, franticly and furiously … limited inventory, intense demand, and record low interest rates created the perfect storm to instigate bidding wars amongst Buyers, and subsequent surges in pricing. With the average price peaking in February at a little more than $825,000, and over $85,000 than just a month prior, a 34.2% increase from the previous year was reported. We began to see early signs of a change in March. I believe there were a number of reasons for this: the first interest rate increase was announced, covid restrictions were loosened (thereby allowing consumers to become distracted by other spending habits), inflation began to soar in connection with gas prices and the evolution of the Russia/Ukraine conflict, and inventory began to pick up from Sellers planning to take advantage of the usual spring market as well as unprecedented selling conditions. This resulted in a quick influx of inventory – 1544 new listings – more than ever before at that time, and a surprise to many. As we rolled into the spring, the overheated market continued to balance itself with prices continuing to simmer in tandem with ongoing interest rate increases and inventory available. By this point, our average price was reported at $762,682 which still represented almost 20% more than the previous year. Sales cycles remained strong, even as activity declined by a little more than 30% compared to the previous year. By the time our third quarter presented itself, we were trending towards a balanced market. Signs of both transition and stabilization were apparent, marked by less intensity, more negotiating power for Buyers (a 98.7% list to sales price ratio shows us that many homes were no longer selling for above the asking price and that Buyers were gaining some footing), increased inventory (which had climbed to 3.6 months in July, compared to 0.5 in January), and softer prices. October brought about prices dipping 4% lower compared to the year prior, with the average reported at $640,570. By the time we coasted into November and December, activity had slowed to that of a Buyer’s market. This was apparent by longer sale cycles of 25-30 days, increased inventory, and fewer sales to balance this – activity was approximately 40% less than the previous year. Buyer confidence was rattled by higher interest rates and crippling inflation, with the fear of a recession leading many to sit on the sidelines until stability in the market returns. We definitely experienced a dramatic shift over the course of the year, and quite a rollercoaster of conditions along the way. This brought about many emotions for consumers over the year too – from anxious, defeated Buyers experiencing rejection time after time early on, to frustrated Sellers unable to meet expectations that no longer represented the reality of the market as the months waned on. To say it was tumultuous would be an understatement.
So… after all that 2022 brought about, it begs the question… now what? Of course and as always, we don’t have a crystal ball to suggest how the coming months will progress. Substantial increases to lending rates certainly have and will continue to impact home pricing. It is quite possible that we will see a few more increases before the Bank of Canada which could stifle momentum until the return of some steadiness in rates. In the meantime, the government is doing exactly what they hoped – stretching borrowers with increased costs to service their debts, thereby causing many to tap the brakes on unnecessary spending in order to ease the rate of inflation. That said, I am not concerned about the long-term health of our market for a number of reasons:
- London is the 4th fastest growing city in Canada. This means people will continue to work here, live here, and spend their money here, spurring on an active economy with plenty of ongoing development.
- The Forest city is unique in that a large base of our employment is made up of the public sector. These jobs are often essential, and remain stable. Our education system and healthcare will be unshaken by any risk of job loss or recession … and as long as people keep making money, they’ll likely keep spending it too.
- Many economists suggest that rates will moderate within the year, providing some reprieve and thereby instigating activity for those sitting on the sidelines.
- I am already seeing signs of activity, which will inevitably create some motion and thereby energy in the market. All the Buyers previously vying to purchase have not simply disappeared and will most likely return to their searches in due time. Alongside the many newcomers immigrating, our population continues to grow, creating a need for housing. With this need, comes demand… which requires supply.
- I have been reminded that regardless of market conditions – our homes are intricately tied to our life stages, transitions, and circumstances. People will always need a place to live, and there are always reasons to buy or sell… whether due to young adults establishing themselves, the elderly downsizing, estates being dissolved, professionals relocating, etc, etc etc. Though the intensity of the market may have subsided for now, the industry WILL continue.
It is quite possible that this year will be less robust and perhaps a little flatter than we’ve become accustomed to, but this is all part of the economic cycle, that will recover – and recover, it will. Economists expect stabilization towards the second half of 2023 as economic conditions become more consistent. Though signs point towards a recession, it is suggested that it will be short and mild.
I believe we will return to some balance, with the spikes and surges experienced over the last few years behind us for the time being. Returning to some normative growth patterns, I suspect that prices will remain relatively steady and may begin to inch up as activity picks up in the months to come. In fact, if we remove the unprecedented turbulence caused by the Covid pandemic, trends remain consistent with steady and consistent growth. We can’t use the values from the last few years as a benchmark based on the unique circumstances we faced. Eliminating these exceptions from long term economic development shows that we are trending in a healthy and positive direction.
Here are some interesting statistics gathered from a variety of sources with some thoughts on the year ahead:
- 73% of Canadians still believe that home ownership is a great long-term investment, increased from 49% just a year ago.
- 17% of Canadians suggested that they anticipate entering the real estate market in the future
- 54% of Canadians feel that their financial situation is stable heading into 2023
As always, I welcome your questions at any point and look forward to discussing your real estate goals and dreams with you. It truly is a privilege to earn your trust and be invited into your decision making and I am honoured to walk alongside the journey of your real estate investments, ensuring that you are informed and educated each step of the way. Though we can’t control market conditions, we can respond intelligently to them, and I am eager to continue sharing my insight so that we can do just that!
Please remember, whether it’s a simple recommendation to a service provider, a discussion about how to strategically engage in today’s market, or a referral to a friend of family member in need of real estate services – I am never more than a phone call away, and always enjoy connecting with clients and friends, past, present, and future! Please don’t ever hesitate to reach out!