September 2022 Peterborough Real Estate Market Update

Article At A Glance

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• Average Sales Prices Continue to trend downward.
• August saw the first decrease in overall inventory month over month this year.
• August saw the first increase in total sales volume month over month since peak activity this March.
• Buyer confidence remains low even though housing scarcity is still apparent in rising rents.
• The BOC’s next moves are uncertain.
• The multi-varied equation of buyer demand for our Peterborough region continues to shift based on several factors discussed in this article.
• We are yet to see a bottom in the market, and opinions about how close we are vary greatly.

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Hello everyone, it's been a couple of months and we've got a lot to catch up on!

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The market has been moving as quickly in the downward direction in 2022 as it did on its epic rise towards the end of 2021.

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Across Canada, buyers for residential real estate have disappeared as interest rate hikes take their grip on borrowing power, and general consensus about the mid term outlook for real estate demand remains uncertain.

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While we know that Canada is on pace for record immigration numbers this year and that the supply shortage is real, as evidence continues to show us in sky rocketing rental rates, buyers still remain hesitant to enter the market.

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There is currently a classic deflationary attitude amongst consumers of, why buy today when it will likely be cheaper in two weeks from now? This mindset has been cemented by several consecutive months of significant drops in average sales price, median sales price, and total sales volumes across almost all Canadian markets.

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Peterborough is no exception to the trends seen nationwide right now, and we - like other small and mid sized cities in Ontario - are also feeling the drain of two other emerging factors in buyers decisions; Pandemic work from home trends reversing, and rising fuel prices causing buyers to pause and do the math a few more times on just how much they will save on their mortgage by moving to Peterborough.

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Change in Home Prices

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Average prices in the City of Peterborough are down just over 20% from their peaks in March of 2022. This means that what was a $1,000,000 home is now worth about $800,000 and that what was a $600,000 home is now worth about $480,000. Those are some drastic changes, and likely the most notable aspect of the whole discussion is that affordability has not improved. The Globe and Mail recently released an article stating that housing affordability in Canada is at its worst level in over 30 years, and as some basic math will show you, despite our recent decline in prices, interest rates have held the monthly payments for housing more or less neutral the whole ride down.

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What’s Next?

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So what will happen next? If there's one thing I know for sure, it's that no one really knows. There have been vocal theorists on all sorts of timing related issues in regards to interest rates and housing prices, none of whom I have seen being consistently correct despite their best efforts to incorporate massive amounts of information in their thesis. That being said, it should be no surprise that no one can guess what's going to happen next, when so much depends on each Bank of Canada and government decision.

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Many have been looking with a mindset that sees a bottom soon after the BOC signals that it is done with rate hikes. This is a natural conclusion to come to. The problem is that none of us can predict when this will actually be, and if the market will actually react as we expect.

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Given that the trade off between price decreases and interest rate hikes leaves the monthly payment on most homes almost identical now to what it was in the peak of the price frenzy, it leads one to believe that prices cannot easily rebound to their prior heights without a combining of the perfect storm.

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This perfect storm, as far as I can see it, would include:

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• lower gas prices so that more new canadians and current GTA residents are willing to commit to the commute from Peterborough to their GTA based jobs
• a continuingly constrained supply of new home construction
• a willingness of buyers to embrace housing hacking and intergenerational living to see combined incomes making home ownership within reach
• some degree of reversing in the interest rates

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All of that being said, it would appear to me that the broad majority of people I speak with seem to feel that the bulk of the price declines are over, and that while we may see a sluggish market for a prolonged period of time, we are closer to the bottom than the middle of the roller coaster ride down.

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And while that is just what I have been finding people to feel in conversation, what people feel matters, as public consensus drives the herd mentality that is market sentiment. In other words, as long as enough people think that we are almost at the bottom, as long as they actually base their actions accordingly, this thinking can actually affect how quickly we see sales offset a growing inventory.

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That's enough for my first rant back in a couple of months so I’ll leave it there, but I hope everyone is doing well and I look forward to connecting again soon.

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Regards,

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Mitch