5 Signs The Real Estate Market May Be Finally Slowing Down
The housing market has been booming, creating a strong seller's market. Housing prices in Canada saw an increase in 2020 and 2021.
Financial experts have no reason to believe the housing market will crash. However, there are some indicators that the market might return to something closer to normal — or at least cool off. Although the question of when remains in limbo, these five signs indicate a potential shift in the market.
What Creates a "Hot" Housing Market?
All markets, including real estate, operate in cycles. In many cases, the real estate market mimics conditions within the economy. When the economy is up, the real estate market remains active because people have money to buy.
It is also directly influenced by:
- Mortgage rates
- Housing supply and demand
The current market is what's known as a seller's market. Demand is high and housing supply is low — driving up real estate prices, which lead to bidding wars. The market has been incredibly competitive. Buyers have been going as far as waiving contingencies to secure the home they want.
In addition, mortgage rates hit record lows last year in the United States and Canada. This gave buyers more buying power, which created a domino effect. As demand increased, the supply lessened, and prices skyrocketed.
Recent data shows some signs that the pandemic-fueled demand and the surge in housing prices may be slowing down. However, prices continue to remain high enough for some buyers to stay away from a hot housing market.
Here's why industry experts believe the market may cool off.
1. Days on Market
Days on market is exactly what it sounds like — the number of days a house is available for sale before it is sold.
The faster homes sell, the faster the market.
2. Home Prices
House prices remain high, especially when comparing figures year-over-year. However, housing prices are now rising by single digits. In many areas, house prices have passed their peak growth rates.
In some areas, median sale prices have even dropped slightly. This is a common trend each year as the market generally cools off when school starts. However, 2021 is far more complex.
Overall, the average selling price in the Toronto area is up 19.3% from last year, but month to month we're seeing slower growth today than we were earlier this year. This increase is the case for many regions around both the United States and Canada — especially within metropolitan cities and other large urban areas.
3. Pending Home Sales
Pending homes sales, or homes under contract to be sold, is a leading indicator of how healthy the housing market is.
The Canadian Real Estate Association reported that national home sales rose 8.6% on a month-over-month basis in October, which may indicate a strong, healthy market. However, once again, this isn't overly black and white. Over the summer it may have seemed like we were going into a cooling trend, but the level of activity continues to be above the pre-pandemic pace.
4. Less Competition
If there are more properties on the market, that would allow for less competition and regulation on sales to list price. There may be less competitive pressure in the coming months, resulting in fewer bidding wars, but does not mean that housing prices will significantly drop anytime soon.
5. Rising Mortgage Rates
Low mortgage rates have had a significant impact on the recent housing boom, but have started to increase lately.
Rising mortgage rates are expected to be a lasting trend through the end of 2021 and into 2022. Although rates will not likely jump overnight, it is expected that there will be some volatility in the coming months.