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Is Now the Right Time to Buy in Ottawa?

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Ottawa Real Estate Market Update: Is Now the Right Time to Buy?

Want to know Ottawa’s real estate market update and if is now the right time to buy? here you will find all of your questions, Ottawa’s market has seen consistently strong demand and high prices for the past couple of years, making it an attractive destination for many homebuyers and investors, although since June of 2022, we have seen a relatively flat market due to seasonal changes, rapid increase in inflation and multiple interest rate hikes by the Bank of Canada. As the market has experienced a sudden, unexpected halt to its overinflated state, some individuals have become anxious. In this uncertain market, many buyers often ask me if now is a good time to purchase real estate in Ottawa.

Despite a plateauing in average housing prices, recent economic shifts have indicated that the market is not necessarily on a downward slide and that it is just leveling out. Since the pandemic began, many buyers have been flooding the market in search of their dream homes, leading to what some have referred to as very over-inflated seller’s market. However, we are now very much in a more balanced market as unit sales subside and both buyers and sellers get comfortable entering into conditional transactions. Although there may still be some unevenness due to the changing economic landscape caused by the pandemic, it does seem that the housing market is returning to stability.

February saw a slowdown in unit sales for Ottawa home buyers as we have seen for consecutive months now, indicating that potential buyers are taking their time when making decisions in the current market. This can be attributed to both the increasing inflation costs as well as increasing interest rates from the Bank of Canada – the combination has created a certain amount of hesitancy surrounding listing prices – as home buyers grow increasingly cautious during uncertain economic times. Potential buyers are convinced that prices can still decline even further, resulting in a seemingly never-ending standoff where no one is willing to make the first move. Think the bottom of the market is still just around the corner. Despite these factors, real estate experts in Ottawa remain optimistic about the local housing market, pointing to an expected to pick up in activity as Spring approaches and potential newly constructed units become available and more resale properties hit the market.

The Ottawa Real Estate Board (OREB) saw a significant decrease in residential property sales during the month of February 2023 versus the same period last year. A total of 855 properties were sold through the OREB’s Multiple Listing Service® (MLS®) System, representing a 39% decrease from 1,411 sales in February 2022. Of all properties sold, 633 were freehold-property class and 222 were condominium-property category, with respective decreases of 42% and 31%. Notably, this current level of unit sales falls below the average five-year number for the same time frame – 1,157 units.

Although the pandemic has caused a flurry of market activity in the past year, with transactions and prices up compared to last February, some declines are looming as we prepare to enter into the spring market. The silver lining is that, due to the Bank of Canada holding interest rates steady, prospective buyers have more budget certainty than we may have anticipated this time last year. Consistent interest rates ultimately provide more financial stability when considering these large investments and can therefore influence buying decisions for those in the market for a home or property within the next few months.

By the Numbers – Average Prices:

So let’s look at the numbers for February 2023:

In February 2023, the average sale price for a freehold-class property was $708,968; this represents 5% increase from January of that year. Unfortunately, it still marks a 15% decrease compared to 2022’s average cost.
Year-over-year, the average sale price of a condominium-class property dropped 12%, now standing at an average of $410,927.
Year-to-date, the average sale cost for freehold properties is $695,086 and condos are $411,449. Although these prices are comparatively lower than those in 2022 by 14% and 10%, respectively;

The rise in freehold prices during January could be an indication that purchasers are adapting to the present interest rates. And perhaps, this is a sign of more activity in the upcoming months.

By The Numbers – Inventory:

freehold-class properties have seen an impressive surge in Months of Inventory, rising to 2.8 from 0.7 recorded in February 2022
The months of Inventory for condominium-class properties has risen to 2.5 from a mere 0.7 in February 2022
February’s new listings (1,366) fell 22% below February 2022 (1,762) and up 3% from January 2023 (1,323). The 5-year average for new listings in February is 1,632
Last month saw a decrease in Days on Market (DOM) for freeholds from 43 to 37 days, and condos experienced a similar decrease of 47 DOM to just 43.

A decrease in the days on the market, paired with fewer new listings entering the market, is good news for sellers. However, if that trend continues to impact our supply stock and we don’t get more inventory, our otherwise balanced market could swing back into seller’s territory — but it’s too early to predict.

BACKGROUND

In the past decade, there has been a marked increase in home-buying activity, largely due to the rapid population growth seen nationally. According to figures available for Q3 2012 and Q3 2022, this rate of growth was 12.1 percent. Additionally, interest rates have also had a great influence on home-buying activity, with their levels fluctuating quite significantly throughout that period. In May 2009 saw they reach an all-time low of 0.25%, before climbing in 2018 and 2019 and then settling at the same low of 0.25% level again in 2020. This sustained decrease in interest rates meant that individuals were more likely to secure a mortgage than at any other time over the decade.

In the last 8 years, the average cost has skyrocketed by a whopping 76%, making the price now stand at $593,654 in late 2022! Ottawa’s residential housing market has returned to its balanced territory after experiencing two years of a very inflated hot seller’s market. This day, fewer first-time buyers have been seen in recent months, a majority of homeowners buying and selling today are mostly move-up and downsizing homeowners.

A considerable number of people are selecting shorter, fixed-term mortgages that range from two to three years in the anticipation that interest rates will start decreasing by 2023. With increasing numbers of buyers from Toronto and Vancouver, investors have been flocking to the Ottawa area in search of more affordable four-bedroom detached homes to invest in. Financial affordability has been a major topic in the city, due to higher interest rates. Subsequently, some homeowners who purchased during 2018 or 2019 hope to benefit from their equity gains by downsizing their homes ahead of renewing five-year fixed terms on mortgages. Ottawa-Gatineau’s real estate market has been a beacon of steadiness, with the area’s largest employer offering an unparalleled level of job stability that continues to drive home buying activity. Following the Bank of Canada’s decision that further rate increases are unwarranted in order to keep economic growth at a steady pace, the Ottawa housing market should soon experience increase in prices.

POPULATION INCREASE IN OTTAWA

Population growth is a reality that must be taken into consideration when assessing current and future economic conditions. The federal government is actively striving to increase immigration levels, which will contribute to the population increase. Canada has set ambitious goals for their immigration target: 465,000 new permanent residents in 2023, 485,000 in 2024 and 500,000 in 2025. This is an important step towards the country’s long-term development and progress. But as a result, demand for housing in certain regions is expected to be higher for some years to come.

Ottawa is among the top choice for immigrants looking to settle down in Canada due to its high quality of life, stable work industries, and safety. With an increasing number of people immigrating and migrating to Ottawa from places around the world or across Canada, the demand for housing in Ottawa will inevitably rise. This high demand combined with a limited property inventory will cause real estate prices to become increasingly expensive. Despite this, Ottawa continues to be attractive for those who are looking for a safe and cosmopolitan city to move into with plenty of opportunities, making it a prime destination for immigrants.

INVENTORY HOUSING OTTAWA

The construction industry is facing an unprecedented challenge with the high cost of materials and labour, leading to concerns that this could worsen the current housing crisis. Further impacted by the lack of skilled trades. New housing becomes increasingly unattainable with prices directly proportional to the costs of building it. Therefore, a rise in both raw materials and wages quickly affects the bottom line from which a developer is willing to offer new homes. This could have serious implications for those in need of a new dwelling, as restrictions on supply then lead to even further cost increases beyond what has already been seen in recent years.

The Canadian Mortgage and Housing Corporation (CMHC) has released a report in which they noted that the level of housing starts during the first half of this year had remained steady, despite the decline in overall activity. According to the report, this is largely due to an increase in multi-unit starts, which saw a rise of 4.4 percent and far exceeded the 5-year average levels for this period. This suggests that although there were fewer overall housing starts compared to recent years, certain sectors of the market held strong despite challenging economic conditions.

2022 saw a decrease in both single-detached and condominium apartment starts when compared to 2021, leading to sluggish activity overall. On the other hand, row homes and rental apartments starts rose significantly during this period, indicating an increasing demand for affordable housing solutions.

The construction time for all dwelling types has seen an increase recently, raising concerns in an already uncertain housing market. The explanation behind this rise is attributed to the disruption of supply chains as a result of the pandemic, as well as labour mishaps. These events not only cause a delay in house builds but have a domino effect on other businesses that depend upon completion times and the availability of resources. An underlying concern is that this will further fuel the housing shortage and drive up prices.

INTEREST RATES

On January 25th, 2023, the Bank of Canada (BoC) announced a 0.25% increase in its policy interest rate, taking it to 4.5%. This latest hike marks the eighth time that the Bank of Canada (BoC) has increased its rate over the past 12 months. The increases have been put in place to help stimulate the economy and guide inflationary pressures down. After such impressive and unprecedented rate hikes all within a year, the Bank has now chosen to pause any further implementation until it can monitor and evaluate inflation’s journey back towards 3% by mid-year and 2% by 2024. This decision appears to be indicative of the Bank of Canada’s commitment to monetary stability, as well as their cautious optimism for a gradual economic recovery post-pandemic.

Although interest rates are likely to remain relatively high for the first part of 2023 some analysts predict that inflation may start to curve off by Q3 or Q4 of 2023 which may inevitability lead to a decrease in interest rates that will soon follow.

With a combination of limited housing inventory, already high buyer demand from local buyers who are currently not taking buying action, and increased immigration into the city over the next three years, Ottawa is poised to enter a very competitive real estate market. Low supply combined with the near future decreasing inflation costs and the soon-to-follow potential interest rate drop will result in higher prices and increased stress and anxiety for home buyers. For those interested in taking advantage of this stabilizing real estate market now would be an opportune time to act. Prices may have already reached their lowest point in the process and we may be experiencing the bottom of the market.

Those that wait may see prices start to increase and then realize it’s too late as the bottom has already passed. And then not take action and regret it. No one can time the market. And no one can accurately predict where things might go but these looming factors may be indicative of where the market is heading.

The Ottawa Real Estate Market in 2023

The real estate market in Ontario is expected to grow in popularity and value over the course of 2023, with select cities facing a spike in their home prices. According to a Re/Max forecast from December, Ottawa is one of these cities where prices are likely to go up between two to eight percent by this time next year, as are Sudbury, Hamilton-Burlington, Oakville, Brampton, Mississauga, Muskoka, Niagara, Windsor, York Region, Haliburton, Peterborough, and The Kawarthas as well as Kingston.

The 2023 Canadian Housing Market Outlook Report from RE/MAX anticipates a four percent surge in property costs and a 1.5% boost in unit transactions in the Ottawa real estate sector.

According to local housing professionals, the Ottawa real estate landscape is currently experiencing three major trends: multigenerational living, minimal upward mobility, and an increase in first-time homebuyers.

Conclusion

Ottawa first-time buyers are particular when it comes to the finishes, style, and location of their homes – many avoid home renovations due to their budget constraints. As the cost of single-family dwellings continues to be too expensive to rent, multi-residential properties and tiny or coach home adaptations are predicted to grow in popularity. Ottawa’s housing market continues to be hindered by a lack of available inventory, caused by delayed development projects because of rising fees and resource shortages. Experts predict that home prices could go up as much as four percent in 2023. If you are an Ottawa home buyer, the Spring and Summer of 2023 could be a great opportunity to make your purchase before prices start going up. Taking advantage of the balanced market this season can prove beneficial for you in the long run!

Speaking of relocating – if you have any questions about the moving process feel free to reach out to us – give us a call, shoot us a text, send us an email, or even wrap it in a bow and send it first class because we got your back when moving to Ottawa or anywhere across Canada.