Canada’s housing market appears to be cooling. Is this the right time to buy? 

Click to play video: 'Despite rising interest rates some home buyers are being lured back into the market by falling house prices'
Despite rising interest rates some home buyers are being lured back into the market by falling house prices
WATCH: Despite rising interest rates some home buyers are being lured back into the market by falling house prices – Aug 19, 2022

Home prices are falling in many parts of Canada, but there are important factors to consider before making an investment, according to experts. Knowing what the mortgage rate is and how much a family spends every month amid rising costs of living are some of the factors that need to be taken into account before purchasing real estate, they say.

The latest data from the Canadian Real Estate Association (CREA) showed prices hit $629,971 in July, down five per cent from $662,924 last July. On a seasonally-adjusted basis, it amounted to $650,760, a three per cent drop from June. When pandemic lockdowns began in March 2020, the average national price was $543,920.

The association forecast the national average home price will rise by 10.8 per cent on an annual basis to $762,386 by the end of 2022 and hit $786,252 in 2023.

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So, is this the right time to invest in a property?

Even though such data can be helpful, a professor of Data Science and Real Estate Management at Toronto Metropolitan University, Murtaza Haider, says no one can predict if it’s too early or late, so Canadians need to take a more practical approach instead of a predictive one when it comes to purchasing a home.

“Affordability is not just the price of a property but what comes out of your pocket every month, then you realize that a lower price and higher mortgage could even mean more money going out of your pocket every month to support that mortgage,” said Haider, who also serves as the research director of the Urban Analytics Institute.

Right time is 'when you're ready'

“So the answer is not whether now is the right time to buy or not. The right time is when you’re ready to purchase based on your family and financial circumstances that necessitate a purchase,” he added.

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Click to play video: 'As Canadian real estate prices fall, N.S. market slow to catch up'
As Canadian real estate prices fall, N.S. market slow to catch up

Haider explains that when home prices fall, people who want it to happen don’t end up buying. As they complain about prices soaring and the housing market being unaffordable, tons of people are actually purchasing real estate.

“It’s a counterintuitive behavior … What happens to buyers is when they see an asset losing value, with housing prices going down — they become concerned and say, why should I buy now? even though they wanted the prices to fall, and the moment they start falling, they wait,” said Haider.

“And by doing that, they further contribute to lowering demand and hence lower prices. So that circle continues to unfold. Until such time that the demand comes back, prices start to rise,” he added.

READ MORE: Canadian home prices were down 23% in July from February peak: CREA

While it may seem like the fall season will bring back that demand, it’s uncertain how long the pricing slide will last and how low it will go.

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“The fall is going to be interesting because we’re going to see probably more buyers jumping into the market and you don’t need a ton more buyers to provide a little bit more stability to prices,” John Pasalis, president of Realosophy Realty Inc. in Toronto, told The Canadian Press earlier this week.

“Just a little bit of a bump in demand could be the difference between homes selling in three, four weeks versus selling in two weeks or selling a lot faster.”

Click to play video: 'Transitioning Housing Market'
Transitioning Housing Market

Regardless, Kelly Caldwell, a realtor based in Guelph, Ont., said if an individual has the financial means to purchase real estate despite rising interest rates, then now is a much better time to buy a property compared to the start of the year when it was way more competitive.

“Before … it was a time when prices were skyrocketing, there were bidding wars and no conditions on offers,” said Caldwell.

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“People were just paying far, far too much for a property. So I think it’s much better in the sense that things have cooled off … at least in the one (market) I serve in, there’s a very strong buyer’s market. So technically, it’s a pretty good time to buy,” she added.

READ MORE: Here’s how high interest rates are impacting Canada’s condo demand

Caldwell says she’s seeing a return of good due diligence conditions in offers like home inspection and property financing.

“When the market’s really heated, competitive buyers really felt that they can’t get those conditions accepted for an offer,” she said.

Consider inflation, mortgage rates

Caldwell echoes Haider’s sentiment by saying that the real challenge now is the mortgage rate and the monthly expenses. She said there’s a lot of uncertainty when it comes to the economy.

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“I think a lot of us are feeling the pinch of how expensive things are … our gas, our hydro bills, groceries. Everything. So it’s probably more important than ever for buyers to have a very tough conversation with themselves about how much they need,” she said. “There’s a lot of people I know who have recently downsized.”

Click to play video: 'GTA home sales fell 47% from same time last year, Toronto Real Estate Board data shows'
GTA home sales fell 47% from same time last year, Toronto Real Estate Board data shows

She also said that people who are looking to purchase property should also be mindful of the increasing costs that come with renovations now. Due to the COVID-19 pandemic and the labour shortage, Caldwell said the cost of materials and labour has “skyrocketed.”

“Even finding people can be hard,” said Caldwell. “Look at the cost of lumber before you put on a new deck because it may cost you $10,000 just in lumber today.”

She says traditionally buying an old house that needs a bit of a renovation is a good way sometimes to get into homeownership, but amid rising costs, this is not the case anymore.

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“I am still a believer in it, but I think you need to be very tuned in to the cost of building supplies,” Caldwell said.

Click to play video: 'New poll finds majority of Canadians are cutting back on spending'
New poll finds majority of Canadians are cutting back on spending

As the housing market cools off, Canadians can take their time when purchasing real estate, according to Caldwell.

“Time is kind of on your side and to take the amount of time that you can to really look around and explore different neighbourhoods, explore different types of properties with an eye on for those that are pre-approved and have a mortgage rate locked in with their lender,” she said.

When it comes to sellers, however, Haider says it’s important to figure out the reason behind selling that property and to just go for it, depending on the need.

“Is it because you have to move for a new job or because of age? If your circumstances necessitate a sale, then sell. Don’t try to time the market. Who knows if the market starts to recover later this year, maybe next year or later,” he said.

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— With files from The Canadian Press

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