The past several weeks haven’t exactly been jam packed with good news on the economic front. Canadian consumers are aware by now of the pain that’s being inflicted both by the widespread economic malady of the day (inflation), as well as its hardly-more-attractive remedy (interest rate hikes). While the Bank of Canada’s efforts to curb runaway price increases since the beginning of 2022 have met with some success in restoring balance to our area’s real estate market, a new challenge has emerged on the horizon in the form a widely forecast recession.
Among the most recent of these gloomy projections came from RBC earlier last week, with the bank warning that an inbound economic contraction should now be expected to strike us as early as Q1 in 2023, having advanced from earlier projections of a mid-year arrival. RBC has also predicted a loss of as many as 371,000 Canadian jobs by next year – or about 2% of the total workforce – as well as a $3,000 per year decrease in purchasing power for the average household over the same timeframe. At the same time, the threat of an even worse recession looms if the Bank of Canada is unable to get inflation under control – hence the perceived need for further interest rate hikes before the year is out. Most projections are now putting the overnight rate at 4% by the end of this year, with further rate increases possible into 2023.
Although market prices across all property types have come down in Waterloo Region over the past six to eight months, correspondingly higher interest rates have worked to limit the affordability of housing for long-frustrated buyers – creating a situation in which few people are objectively benefiting from the current economic situation. And, with a recession reportedly now steaming right for us, many homeowners are being left wondering what the value of their most important investment will be looking like in six month’s time. After all, the most important pillar of a healthy housing market is a robust employment market… something that you wouldn’t typically associate with a recession.
Fortunately, there is plenty of reason to keep your confidence in the Waterloo-Wellington market. While nowhere will ever be 100% immune from the effects of a widespread economic recession, certain areas such as our own do have characteristics that work to insulate us from the worst of more widespread unfortunate circumstances. A theme I’ve touched upon time after time is the strength in diversity of Waterloo-Wellington’s employment market. Without beating a dead horse too much here, we ought to bear in mind that we’re lucky to have such strong educational, healthcare, insurance, government, professional services, high-tech, manufacturing and hospitality sectors across the Kitchener-Waterloo-Cambridge-Guelph area. Some job markets will always outperform others in turbulent times, and our region’s ability to attract jobseekers remains perhaps the most important factor in supporting home values.
Last week, the Waterloo Region Association of Realtors hosted RBC Chief Economist Robert Hogue for a presentation on local market insights. In a welcome bit of good news, Hogue shared his impression that while a significant price correction is in store for much of the country next year, some areas have already made it through the worst of things – and that includes our region. This optimism has been borne out by recent numbers published by WRAR earlier this month, which indicate that sale prices here might have already started to bottom out. While it’s only the most marginal of gains, a 0.1% rise in the average sale price of all property types month-over-month in September marked the first such increase in months. This news also comes as detached home prices have recorded two consecutive months’ worth of small nudges upwards – indeed suggesting that we’re through the worst of what has been a 25% drop in average sale price for detached homes between January and July.
So, while we might not be in for the smoothest of sailing to start out in 2023, there are strong indicators that Waterloo-Wellington is in a better position to weather the storm than much of the rest of Canada. And if our striking emergence from the pandemic in 2020-2021 was any sign of how we’ll fare into next year, I’ll happily continue to have confidence in our area’s property market.
