Housing prices are coming down – so why are we seeing fewer showings?
It’s a fair question. You’d think that after two years’ worth of price increase after price increase, weary and frustrated buyers would now be coming out in droves to take advantage of a cooling market. But while the buyer pool hasn’t necessarily disappeared altogether, the numbers do point (both statistically and anecdotally) to fewer people being ready to pull the trigger on a purchase. Over the past several weeks, the total number of showings on active listings has come down significantly from the frenzied activity of earlier months, when hot new listings were at a premium. This is a trend I’ve noticed both from casual discussions with agents in and outside of my office, and during my own dealings with buyers and sellers here in town.
When we have a look at what’s tracked by KWAR to gauge buyer activity in the Kitchener-Waterloo market, this becomes even clearer. Total home sales this past month were down by 24% from the same time last year, and down by over 17% compared to the previous five-year average. All property types were impacted: detached (down 20.7%), semis (down 33.3%), townhomes (down 32.2%) and condos (down 18.4%). This news comes at the same time as the total number of new homes hitting the market this past month soared to decade-long highs. The 1,285 new listings in Kitchener-Waterloo in June of 2022 were 49.2% more than were listed in June of 2021, and over 41% more than at any comparable time since 2012.
The reasoning behind the flood of new inventory these past few months was explained in last week’s article, so I won’t cover it in detail here. But the end result is more choice for buyers (165% more homes were available for sale in June 2022 than the previous year), and lower average sale prices. So why are the number of total showings and the overall pace of sales dropping?
As I see it, there are four main factors at play in this market:
- Summer is, traditionally, a much slower season for real estate.
- Interest rates are up significantly, with the Bank of Canada alluding to more hikes coming soon.
- Many buyers have put their home search on hiatus despite dropping prices and a comparatively wide selection of inventory, in the hopes that prices will come down even further.
- The pace of activity originating from the GTA has now dropped to a fraction of what we were seeing at the height of the pandemic.
The first few factors don’t require much of an explanation. Anyone who’s been in the market to buy or sell before will understand that families are far less active during the summer months than at any other time of the year – holidays are underway, folks are at the beach, and with kids away from school it’s far more difficult to find the time to conduct a property search with adequate diligence.
As for interest rates, it’s been common knowledge for some time now that combating inflation is the Bank of Canada’s number one priority. Rates have increased by a full 2% since March, and the BoC hasn’t been shy in hinting that further interest hikes are on the way. This has dramatically reduced the purchasing power of many Canadians, and despite the lower ‘For Sale’ prices we’ve been seeing in recent weeks, many folks simply don’t have the cash on hand to step into the market anymore. Adding to this is a sense among many people that we haven’t seen the bottom of the market yet. Whether this is true or not (and I continue to believe that we’re uniquely well positioned here in Waterloo Region to avoid the worst of circumstances), it’s enough to keep many of the more cautious prospective buyers from pulling the trigger on a purchase this summer.
So, this leaves us with the final factor: why has activity from the GTA seemingly dried up to such an extent? Anyone who’s been following the market over the past couple of years will already know that the major price increases we witnessed during the pandemic were driven in large part by people looking to flee the exorbitant housing prices of Brampton, Mississauga, Milton, etc. As the Kitchener-Waterloo market has caught up to areas much closer to Downtown Toronto, the incentive for families and businesses to move further away from Ontario’s urban core has been reduced. Whereas in 2020 or 2021 it might have made sense for an individual or a family running a business in Mississauga or Brampton to suck up the hour commute and purchase a family home in Kitchener-Waterloo at a ten or hundreds of thousands of dollars discount, today it’s not so simple of an equation. We’ve largely caught up with GTA pricing over the past couple years, and that’s done much to slow incoming buyer traffic from those parts who are in search of a deal. This has driven total showings in Kitchener-Waterloo down, and back to levels we were used to pre-pandemic.
It’s certainly an interesting time for our market, and I wouldn’t blame anyone in the slightest for being upended by recent developments. If you feel like you could benefit from more personalized advice, please don’t ever hesitate to get in touch.
