Waterloo region real estate market returning to 'balanced state' due to rising interest rates, expert says

After drastic influxes in the market during the worst of the pandemic, the real estate market in Waterloo region is "going back into a more balanced state" mainly due to rising interest rates, says a local expert.

"I would regard it as balanced," said Paul Anglin, a real estate professor at the University of Guelph. "It's not favoring the sellers as was true a year ago."

Interest rates on home loans have climbed this year due to six separate hikes from the Bank of Canada in an effort to combat rising inflation. It was as low as 0.25 per cent back in January, but it now sits at 3.75 per cent.  

Although rising rates are the "dominant" factor in the recalibration of the market, Anglin also attributes this to the lack of clarity about where interest rates are going, and discussions of a possible recession. 

What a balanced market looks like

Anglin said a widely used measure of a balanced market is the monthly ratio of sales to listings at the beginning of the month.

"And the current number is not too far from normal," he said.

Last month in Waterloo Region, there were 489 properties sold between single family homes, townhomes, condos and semi-detached properties, compared to 928 properties that were up for sale. A year ago it was virtually the other way around.

"The number that I often pay attention to is how many days does it take to sell a house and that has increased compared to a year ago," he said.

Last month, a home sat on the market for an average of 22 days, more than double from a year ago. The last time we've seen this number was close to the start of the pandemic in May 2020. 

"The days on market is not so rushed as in the past," Anglin said. "With an average of about three weeks, there is enough time for buyers to compare alternatives without being so long as to make a seller too worried that they will not sell to any buyer."

The sales price on average for a single family home in October of this year was about $860,500, which is down by about 27 per cent from the height of the market back in February.

Condos have seen a drop too but not as significant —  last month the sales average was about $488,200, down 14.5 per cent from February.

Despite this, the sales price on average in October for single family properties and condos is much higher than pre-pandemic levels —  they're up about 145 per cent respectively from October 2019.   

New home price declines more than the national average

In September, the prices of new homes fell by 0.1 per cent nationwide — it was the first drop since before the pandemic. However, Cambridge, Kitchener and Waterloo saw a more dramatic decrease of 0.6 per cent. 

Megan Bell, president of the Waterloo Region Association of Realtors, attributes this to people moving to the region from the Greater Toronto Area (GTA) looking for an affordable option, and where they would qualify for a loan.

So many people came and that demand pushed the home prices up so they're nearly the same as Toronto. 

"I think we're seeing some people either moving back because our prices were kind of on par with the GTA — or just a little bit under — the affordability really wasn't there, so they might have to continue driving down [Highway 401] to continue to qualify," Bell said.

Another thing that contributed to the figure, according to Bell, is that people moved to the region during the pandemic since they were able to work from home. Prices were bumped up due to the influx and demand, but some have since left because they have to go back to the office in-person. 

These things along with inflation and climbing interest rates bring the market to where it is today, Bell said.

She believes that "we're heading toward a more balanced market" too, but thinks that it sways in favour of the sellers. 

Statistics Canada, which released the 0.6 per cent figure, said in a statement that "builders cited bad market conditions as the reason for price decreases."

Advice for buyers and sellers

in the meantime, Anglin offers advice to both buyers and sellers:

"For now, buyers and sellers have to make their best decision given the available information," he said. "So, my advice for buyers is the same that it has been for a while: Buy a house that you would be happy living in, even if the price were to fall." 

"For sellers, there is always the possibility of regret but, again, if you like where you live now, then enjoy living there. In both cases, you need to accept the risk, since life offers few guarantees."