Home sales in the capital fell for the 10th consecutive month in December as buyers continued to sit on the sidelines amid rising inflation and interest rates – a situation that could continue into 2023, a prominent local realtor says.
A total of 601 residential properties were sold in the city last month, down 30 per cent from a year earlier, the Ottawa Real Estate Board said Thursday. That followed a 42 per cent drop in November and a 41 per cent decline in October.
As sales dropped and inventory rose, the average price for a residential-class property fell seven per cent year-over-year to $655,839. The average condo price, meanwhile, rose nine per cent to $434,973.
While December always tends to be a slow month for home sales, last month’s numbers are far below historic levels. The five-year average for December transactions is 775.
“Even with the normal seasonal slowdown, December’s performance was in stark contrast to the very active resale market that opened 2022,” Ken Dekker, OREB’s incoming president, said in a news release.
“As interest rates and inflation both climbed, buyers retreated to the sidelines and began taking a wait-and-see approach. However, while it’s quieter than the frantic pace we experienced in 2021, it is now a balanced market.”
Overall, home sales in Ottawa fell 25 per cent in 2022 from the previous year, with a total of 15,288 properties changing hands, compared with 20,289 in 2021. Last year’s total sales volume was about $10.5 billion, down from $13 billion in 2021.
The average sale price for a residential home in Ottawa last year was $769,623, up seven per cent from 2021, while the average condo sold for $453,770, an increase of eight per cent from the previous year.
Ottawa’s slowdown mirrors a nationwide slump that began last spring when the Bank of Canada started hiking interest rates in a bid to rein in runaway inflation. The country’s benchmark interest rate now sits at 4.25 per cent – the highest it’s been since January 2008.
The hikes, which spur mortgage rate increases, have weighed on buying power and forced many to rethink their housing decisions.
The result has been slowing sales and rising inventory. Ottawa’s supply of residential-class housing increased to 3.7 months in December, up from 0.9 months a year earlier, while there is now 3.9 months’ worth of condo inventory, also up from 0.9 months in December 2021.
Those figures are no surprise to David Sugarman. The veteran sales representative at Ottawa’s Coldwell Banker Rhodes and Co. says homes that would have been snapped up in days at the peak of the buying frenzy early this year are now staying on the market for months.
“I think there’s still that disconnect (between buyers and sellers),” he told OBJ on Thursday afternoon. “Buyers are like, ‘Well, there’s choice’ – much more than there has been in the last three and a half years.”
While many observers are hoping rate hikes will soon level off, Sugarman said he’s casting a wary eye south of the border. The U.S. Federal Reserve increased its key rate seven times in 2022, and many experts believe the Fed will likely want to see inflation moderate further before the bank suspends additional hikes.
“That will affect us,” Sugarman said, adding the spectre of continued rate hikes could put a damper on the Ottawa market for some time to come.
Sugarman said he’s seeing more homes going on the market than usual early in the year. He suggested the resale housing supply could continue to rise as homeowners elect to test the waters now rather than gamble that central banks will put the brakes on further hikes in 2023.
“I think what we’re going to see is a little bit more inventory come out sooner than later,” he said.
Dekker, meanwhile, said it’s still too early to predict what the new year will bring.
“Since Ottawa is made up of hyper-local markets, it is a difficult ecosystem to forecast,” he said. “Plus, there are a multitude of factors influencing a changing economic environment these days that will dictate how much activity the resale market will see in 2023.”
– With files from the Canadian Press