Don’t Panic the Housing Market is  Not Crashing

By: Sylvia Smith

Don’t Panic the Housing Market is Not Crashing


The past three years have been rippled with uncertainty and change all around us.  But the housing market has surprised everyone even those of us in real estate.  At the onset of the pandemic, we all expected the market to dramatically slow down but it did the exact opposite.  The current slowdown in the market is not directly related to an economic slowdown but the outcome of a medical pandemic that has thrown the market off balance.  What we experienced during the pandemic started in 2019 – demand was outpacing supply and the pandemic may have exacerbated the need to move.  

The lockdown actually resulted in many families saving more than ever before and as a result of supply issues and pent-up spending inflation has gotten out of control.  The Bank of Canada has been increasing interest rates in an effort to bring inflation under control.  I know that homeowners and buyers are very concerned about the health of the real estate market and what to expect this year.

Here is why I do not feel that Canada’s market is not on the verge of a crash and what to expect as we move forward.   A crash normally follows when we are in a housing bubble.


What is a housing bubble?


Housing Bubble


A housing bubble also frequently referred to as a “real estate bubble” happens when the price of homes rises quickly and at an unsustainable rate.  A bubble occurs when real estate prices increase rapidly and are unsustainable, creating sales of homes that are selling for overinflated values compared to the average income.  In Canada, the last time we experienced a bubble was in the 1980s after homes sold for exorbitant prices and mortgage rates that reached 18% which resulted in a severe recession and many homeowners losing their jobs.  Since the 1980s the market has experienced highs and slowdowns. In 2017 we experienced a huge demand for housing that resulted in substantial price increases due to the introduction of the new mortgage stress tests and many buyers wanting to buy before the new stress tests were introduced.  


Under healthy real estate conditions, homeowners continue to earn equity over time, sellers can make a profit on resale and buyers can still afford to get into the market.  Economic factors such as an employment boom and favourable interest rates usually explain this price growth.    On the other hand, in a housing bubble from non-organic growth, for example, speculators flood the market, buying homes to take advantage of the rapid price increases, hoping to sell in the near future with large profits.  The massive increase in listing coupled with a decrease in demand causes prices to plummet and results in a “real estate market crash”. Which is currently not our situation. Since the Bank of Canada rate hikes buyers have slowed down their decision to buy but new listings are also down - sellers are holding off listing their homes in this current market.


Are We in a Housing Bubble?


The Ontario housing market reached record-high selling prices throughout the pandemic. At the onset of the pandemic, the housing market came to a grinding halt in mid-March 2020 and the spike in demand for homes met by a supply shortage created the perfect environment for price growth.  


Speculators tend to wait out hot markets, buying when prices are down and selling when they increase again.  Short-term investment opportunities are difficult to find in a hot real estate market where many properties are selling in bidding wars.  The bidding war environment that we experienced during the pandemic is not what speculators and investors generally like.


As the Bank of Canada utilizes interest rates to tamper inflation and we have 2022 seen a bit of an increase in supply but not enough to indicate a crash. We are seeing signs that we are now in a more balanced market and not the records we experienced throughout the first two years of the pandemic.


For a housing bubble to burst, there needs to be a steep increase in listings and a dramatic decline in demand – neither of which is likely to happen any time soon.


Crash in 2023?  It’s Highly Unlikely.


Housing Market Crash


In 2022 the Ontario housing market was still feeling the impact of pent-up demand from 2017 when the government introduced the foreign buyer tax and the mortgage stress test to cool the overheating market.  These programs prompted many homebuyers to place the home-buying decision on hold, and opt to wait and save, with plans of re-entering the housing market in a few years.   


Halfway through 2019, many buyers saw that demand was coming back to the market, and properties started once again selling in bidding wars.  At the onset of the pandemic buyers delayed their decision to buy given the pandemic uncertainty.  The pre-pandemic demand for housing continued to swell.  During the pandemic with Canadians being in lock-down orders and nowhere to go and spend their hard-earned money, they saved at record rates, and as a result, these savings were used to purchase larger properties as consumer confidence returned.  The savings went into record-high home sales and those that were not prepared to deal with the competitive resale market conditions decided to renovate.


Although listing inventory is no longer at record lows, it is still in short supply.  However, many buyers are still sitting on the sidelines and as a result, we are in a balanced market in many Ontario communities.  Prices have definitely dropped from the February 2022 peak and homes are now taking a bit longer to sell.


Given the pent-up demand that still exists, and that it is unlikely that we will experience a dramatic influx of real estate needed for a housing market crash – and even if we did see a dramatic increase in new listings we still have many buyers to absorb the new listings. Plus the increase in immigration will keep demand high for some time to come.


What’s Coming in 2023


2023 Housing Market Projection


As we have experienced through the last 6 months of 2022 the housing market is now in a more balanced market.  Prices have dropped from the February 2022 peak and if interest rates continue to increase we may still see prices drop off a bit.  However, the Bank of Canada alluded during the last rate increase announcement that they may put a pause on rate increases to determine the impact on inflation.  


Different communities are impacted differently depending on the supply of listings on the market so some are still in a softer seller’s market, while others are in a balanced market and others are in a buyer’s market.  In communities where listing inventory is higher, more significant price reductions may continue to take place in 2023. 


While interest rates have increased the increases have been offset by a decrease in house prices.  But this doesn’t mean that sellers should panic as the demand for real estate is still there and the demand for housing is still there and homes are still selling.  Buyers that continue to look for a home are serious and ready to buy.  Those selling a home will net less on the sale of their home than they would have in early 3033, most sellers also need to buy so they will also pay less for their next home.  If your situation is different and you have concerns – reach out and let’s talk.  I am here to help in any way I can.


Challenging market conditions and a still-present global pandemic have added challenges and uncertainty for home buyers and sellers.  Market conditions also vary by the community so now more than ever it is essential to work with a trusted, professional Realtor who can guide and support you through the buying and selling process.


I commit to presenting the facts to my clients and being completely transparent and as honest as possible and am here to help.  I do not believe that we are in a housing bubble about to burst.  The biggest challenge we now face is getting first-time buyers into the housing market.  With the increased population, the growth in demand for housing is not expected to slow down any time soon.