Amid a supply crunch that’s sent house prices soaring to record highs across the country, one of Canada’s largest real estate companies now says it expects home prices in the region to rise even further than it predicted at the start of the year.
Royal LePage is forecasting the aggregate price of a home in Ottawa will jump 13 per cent in the fourth quarter of 2022 compared with the same period a year earlier, the company said in a report released Tuesday.
That’s up from its previous forecast of nine per cent in late December. Royal LePage said it was revising the prediction upward “to reflect the continued strength of the market through the first quarter of the year.”
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The new projection comes as a persistent shortage of inventory drives up housing costs at a rate never before seen in Ottawa’s history.
Royal LePage said the aggregate price of a home in Ottawa increased 19.9 per cent to $809,200 in the first three months of 2022, the highest gain on record since the firm began tracking the metric.
The median price of a single-family detached home increased 20 per cent to $947,600 in the first quarter, the company said, while the median price of a condominium rose 9.8 per cent to $432,500.
‘Highly competitive’ market
“Ottawa’s real estate market remained strong in the first quarter of the year, and I expect this trend will persist as we enter the spring season,” Rick Eisert, a broker at Royal LePage Team Realty, said in a statement.
“A shortage of inventory and increased demand in the region continues to drive price appreciation, resulting in a highly competitive environment for buyers.”
The veteran realtor said demand for housing is being driven by a wave of new residents who are attracted by Ottawa’s strong job market and “vibrant city culture.” But he said new homebuyers are being stymied by “escalating home prices as a result of low inventory.”
First-time buyers “are finding it challenging to navigate the market with such strong competition,” Eisert said, adding more and more home shoppers are opting for condos or looking farther afield to markets such as Almonte and Carleton Place where dwellings are more affordable.
“However, home prices in these areas are also increasing rapidly,” he added.
Earlier this month, Ottawa Real Estate Board president Penny Torontow noted there was just over half a month’s supply of inventory in the city, well below the fourth months’ worth of available housing that’s necessary to constitute what realtors consider to be a balanced market.
Torontow said new properties coming on the market “are being quickly absorbed due to the unrelenting high demand, and more listings are crucial to meeting this need.”
Eisert said he expects a strong spring market as more inventory becomes available, adding that there are numerous housing developments now under construction which may help satisfy some of the pent-up demand.
Royal LePage issued its report the same day the Canadian Real Estate Association said home sales in Canada fell in March, while prices rose 11.2 per cent compared with a year earlier.
The association said home sales in March were down 16.3 per cent compared with the same month last year, when they hit an all-time record.
On a month-over-month basis, seasonally adjusted home sales in March were down 5.4 per cent.
Buyer fatigue
TD Bank economist Rishi Sondhi said part of the decline in March probably reflected buyer fatigue to some degree following several months of robust activity, as buyers pulled forward their purchases ahead of higher interest rates.
The Bank of Canada raised its key interest rate target by a quarter of a percentage point at the beginning of March and by an additional half of a percentage point last week. The moves drove prime rates at commercial banks higher, since they use the central bank’s key rate as reference when setting variable mortgage rates.
Rates for five-year fixed-rate mortgages have also risen in recent weeks as the yields of five-year government of Canada bonds have climbed higher.
“And, with the Bank of Canada set to hike rates aggressively, home sales are likely to trend even lower moving forward,” Sondhi wrote in a report.
“This should help balance the market and weigh on home price growth. Indeed, our forecast anticipates significant softness in average home price growth in the second half.”
The drop in sales came as the number of newly listed homes fell 5.5 per cent on a month-over-month basis in March.
CREA said the decline in new listings was led by Greater Vancouver, the Fraser Valley region in B.C., Calgary and the Greater Toronto Area.
The actual national average home price was $796,068 in March, up from $715,696 in the same month last year. The association said excluding Greater Vancouver and the Greater Toronto Area, two of the most active and expensive housing markets, cuts $163,000 from the national average price for March this year.
Royal LePage said its Canadian price survey showed the national aggregate home price was up 25.1 per cent year-over-year in the first quarter at $856,900, the highest gain on record since the company began tracking prices.
Royal LePage CEO Phil Soper said the real estate firm anticipated a strong first half of the year, with a moderating of real estate markets thereafter.
“The first quarter of the year was so strong, however, that we are bumping up our 2022 outlook,” Soper said in a statement.
“And, home prices will continue to climb in the months ahead as a result of our relentless low supply-high demand imbalance.”
Royal LePage is now forecasting that the aggregate price of a home in Canada will increase 15 per cent in the fourth quarter of 2022, compared with the same quarter in 2021. The outlook compared with an earlier forecast that called for a 10.5 per cent increase.
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