The whistling housing pressure pot

The whistling housing pressure pot is steaming. Fewer homes are available for sale, and there are plenty of buyers. The Canadian Real Estate Association (CREA) said that the number of new listings of homes on the market has dropped by 5.8 percent. The number of months of inventory has trickled to 3.9, and the housing supply is the lowest since 2003. 

Homeowners are hanging on to their homes longer. Many seniors are taking a reverse mortgage on their property and continue to live there instead of selling and moving to a retirement home. Investors and speculators are sopping up the trickling supply of homes. Over 850,000 immigrants came in 2021, and about 1,050,000 in 2022. Builders are building fewer homes and, in so doing, limiting the supply. From these factors, prices will continue to climb despite the interest rate.

RE/MAX Canada president Christopher Alexander said, "If I was to make a prediction, I think the market's going to pop again sometime around late April, early May." According to the RE/MAX Canada president, increasing numbers of Canadians entering the housing market would create a ripple effect, and more people will enter the battle. Mr. Alexander's prediction is accurate. Once a limited supply of homes is on the market, prices will continue to increase.

It is becoming more difficult for first-time buyers to buy. I am working with a young couple who plans to buy their first home. The couple's budget is around $750,000. We chose to look at properties east of Oshawa. The asking price for these homes is $699,000. The problem is that these homes are selling for about $950,000. There are about 15 offers on each house, and if a buyer decides to make an offer subject to a home inspection or obtaining finance, their proposal becomes be less appealing to the seller. With multiple offers, the seller tends to choose an offer without any conditions, a substantial deposit, and the best price. 

The latest bouts of interest rate hikes have resulted in higher borrowing costs for homeowners, and many homeowners who cannot afford their mortgages will sell their homes. With more homes on the market, prices will fall. However, some homeowners increase their amortization period well beyond 40 years instead of selling. Amortization is an equal mortgage repayment system with a fixed end date. By extending their amortization, homeowners maintain their regular monthly payments and, as a result, manage to keep their homes.

Carolyn Rogers, Bank of Canada's Senior Deputy Governor, said, "The banks are acutely aware that mortgages that are not getting paid down that are not getting amortized down is not a sustainable situation over the long run."

Most mortgages have a 25-year amortization. With a 40-year payment option, most monthly payments go towards interest instead of the principal. Poorer families who cannot keep up with the interest rate hikes choose the 40-year payment option and consequently will be the ones who are affected in the long run. Nevertheless, extending the amortization is better than selling the home and renting a property. For these homeowners, it's best to revise your budget or get a second job to reduce the number of years it would take to pay off your home. Today's sacrifice will bring prosperity later.

Most buyers are looking for modern homes. These homes are below the market value with an offer presentation date. The intent is to get emotionally charged buyers to outbid each other. I advise looking at homes that need to be renovated and have been sitting on the market for ten days or more. Sellers for these homes will likely drop their prices, allowing buyers to arrange to finance and complete a home inspection. A buyer can then upgrade the house gradually. Another option for buyers frustrated with the GTA real estate market is to relocate to smaller towns. This move can be appealing if the buyers can work remotely.

There is a new trend where more than one family is living together. This way, they can share the expense. Instead of selling and moving to another home, many people are choosing to renovate and keep their homes. The demand for houses in GTA is high, while the supply is low. Do what it takes to get a home, or hang on to your current home. It's a shelter against poverty.