Falling condo sales in Ottawa reflect ‘softening’ demand for housing as interest rates rise, Re/Max says

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Condominium sales in Ottawa have fallen 17 per cent in the first eight months of 2022 compared with a year earlier, reflecting a “softening” in the overall housing market amid rising interest rates, Re/Max Canada says.

A total of 2,969 condos changed hands in the capital between January and the end of August, down from 3,577 in the same period in 2021, the national network of real estate agents and brokers said in its annual condominium report released Thursday.

Still, Re/Max said Ottawa’s condo market is “holding relatively steady” despite headwinds like rising interest rates. 

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While condo sales are down year-over-year, their share of the total market remains almost unchanged from a year ago. Condos actually accounted for a slightly larger share of overall housing sales in the first eight months of this year – 25.1 per cent – than at the same point in 2021 (24.3 per cent).

Re/Max Canada president Christopher Alexander said condo sales are expected to rebound in 2023 and 2024 as interest rates level off or start to decline.

“As demand for condos ramps up again, inventory will contract, and price growth will likely regain a stronger upward trajectory,” Alexander said in a statement.

Even as sales have fallen, condo prices have continued to rise over the course of the year. According to Re/Max’s study, the average sale price for a condo in Ottawa in the first eight months of 2022 was $457,771, an 8.8 per cent increase from 2021.

But other reports suggest condo prices have recently begun to drop as available inventory rises. 

Royal LePage reported Thursday that the median price of a standard condominium in Ottawa was $392,300 in the third quarter, down nearly six per cent from $416,900 in the second quarter and a 5.4 per cent drop from the median price of $414,700 in the third quarter of 2021.

More ‘balanced’ market?

Sean Tasse, a broker at Ottawa’s Re/Max Hallmark Realty, said the decline in sales and prices is a sign that the city is returning to more of a “balanced” market after a torrid 2021 that saw bidding wars become common and average resale condo prices rise nearly 20 per cent from the previous year.

In its report, Re/Max noted there is now about three months’ worth of condo inventory in Ottawa, meaning it would take roughly 90 days to sell all the available units if no more were no more were put on the market. By contrast, for most of 2021 and early in 2022, there was barely one month’s worth of inventory.

“You have to take into account that last year was a rockin’ year for condos,” Tasse said. “Supply was so low. The supply being a little bit higher now is bringing us more in line with what we should be expecting.”

“You have to take into account that last year was a rockin’ year for condos. Supply was so low. The supply being a little bit higher now is bringing us more in line with what we should be expecting.”

In Thursday’s report, Re/Max said core neighbourhoods like Centretown, the Glebe and Old Ottawa East are becoming more popular among younger buyers.

“The rapid appreciation of freehold properties continues to prompt would-be buyers to consider condominium ownership,” the company said, adding that “properties that offer lower condominium fees, amenities, parking and storage lockers are most sought-after.”

Meanwhile, the firm said “established communities” such as the Glebe, Westboro and the Golden Triangle are drawing the attention of homeowners looking to downsize. The report highlighted a “shortage of luxury inventory” in the Glebe, noting that units selling for more than $650,000 are “few and far between.”

The brokerage network also said more condos are being converted into rental units as post-secondary students have returned to campus, driving demand for apartments close to Carleton University and the University of Ottawa.

Tasse said he’s seen a shift in the market over the course of 2022 as more would-be condo buyers seem to be eyeing one-storey highrise units that are popular inside the Greenbelt as opposed to two-storey, townhouse-type units that are more common in the suburbs. 

The average price of a two-storey condo has risen 10.9 per cent since the start of the year, he said, compared with a 6.8 per cent price hike for one-level units. But in September, the trend was reversed, with prices of two-storey units falling by 1.5 per cent while one-level unit prices jumped 12.1 per cent from the previous month.

‘Return to normalcy’

Tasse attributed some of the shift to a gradual “return to normalcy” as more Ottawans look to get back to their pre-pandemic routines and want to live closer to work and amenities like restaurants.

“For a lot of people, their style of life involves living in a condo downtown,” he said. “It only stands to reason that it’s the part that’s making the resurgence.”

Meanwhile, Royal LePage is now forecasting aggregate home prices in Ottawa will rise just 0.5 per cent in the fourth quarter compared with a year earlier. That’s down substantially from its July forecast that predicted prices in the fourth quarter to be up 10 per cent on a year-over-year basis.

The real estate firm said Thursday it expects the aggregate price of a home will be $743,399 in the fourth quarter, up from $739,700 in the same period in 2021. 

Royal LePage says the revision reflects “current market conditions” as interest rates continue to rise and demand for houses dampens. Ottawa’s aggregate home price of $744,500 in the third quarter was down seven per cent compared with the end of June, its second straight quarter-over-quarter decrease. 

While Ottawa is “trending toward more stable conditions as new inventory becomes available,” local realtor Jason Ralph said it’s still a seller’s market.

“We continue to see strong buyer demand in the region – even if lower than last year’s historical highs – and not enough supply to fully shift to a balanced market,” Ralph, a broker at Royal LePage Team Realty, said in a statement.

“Despite rising interest rates, many buyers are still keen to make a purchase this year. And without a significant boost in inventory, it is unlikely we will see a full return to a balanced market.”

National price forecast down

Nationally, the real estate brokerage’s house price survey is predicting the aggregate price of a home in Canada in the final three months of the year will be down 0.5 per cent compared with the fourth quarter of 2021.

That’s down from its July outlook, when it predicted prices in the fourth quarter would rise five per cent on a year-over-year basis.

The real estate market in Canada has cooled as mortgage interest rates have climbed higher this year.

Royal LePage says the national aggregate home price in the third quarter was up 3.3 per cent year-over-year at $774,900. However, it was down 4.9 per cent on a quarter-over-quarter basis.

Royal LePage CEO Phil Soper says home prices follow sales volume trends, which means he expects to see further softening in the final months of the year.

“September did not bring the typical seasonal lift in the number of homes trading hands in this country, a clear indication that our housing market continues to adjust to higher borrowing costs,” Soper said in a statement.

“Our revised outlook has national prices at just below where we ended 2021, erasing the gains made in the first quarter of 2022.”

In a separate report Thursday, Canada Mortgage and Housing Corp. is also predicting housing prices will continue to drop in 2023, but is warning the fall will do little for affordability.

Patrick Perrier, the housing agency’s deputy chief economist, said he expects the national average home price to fall 15 per cent from $770,812 – the peak seen in the first quarter of this year – by the end of the second quarter of 2023.

On an annual basis, he sees prices growing 2.6 per cent in 2022 compared with 21.3 per cent in 2021 and then declining 6.3 per cent in 2023 and rising 2.1 per cent in 2024.

Perrier attributed the moves to housing demand slowing as interest rates rise.

Despite the price decline, Perrier believes housing affordability will not improve because any benefits that can be reaped from lower prices will be offset by higher interest rates and combined with an increasingly competitive rental market.

“Those who are current renters that were planning to purchase a house, they won’t be able to do it, so they’ll stay in the rental market,” Perrier said in an interview.

“And unfortunately, we might see others that are currently owners that, because of deterioration in their employment and income conditions, might have to sell and go on the rental market.”

– With additional reporting from the Canadian Press

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