As the Bank of Canada looks to make their second increase to interest rates in as many months there is a lot of speculation around the real estate industry and what Canadians can expect after more than a year of historic price increases. Speculators are anxious to see if the market will sustain this unprecedented growth or if prices will begin to stabilize, or even recede. While the future is challenging to predict with certainty, there are some key indicators worth evaluating that will influence both demand and price elasticity. We’ll focus on inherent characteristics of the market, the impact of monetary policy, and the signals around buyer behavior which will all contribute to the next 12-18 months of change within the Niagara real estate market.

To start, we need to look closely at the landscape within the Niagara region. Unlike regions closer to Toronto, Niagara has approximately 5% of the population density of Toronto. While developers push to convert more and more land to high-density townhouses or condominiums, the Niagara region carriers a higher amount of low-density, detached housing with larger lots and agricultural plots of land. Two key factors of note here are the urgent lack of inventory in for sale real estate and the highly desirable nature of detached homes. These factors add pressure to the market which would otherwise see slower price volatility due to the distance from the Greater Toronto metropolitan center. As more people seek out work from home arrangements and look to move away from cities, Niagara is in a prime position for a quiet pace of life with easy access to amenities in nearby city centers and the highly appealing wine region. This sets up residential properties in Niagara for sustained, albeit slower, price growth in line with recent market increases in Hamilton, Waterloo, and Cambridge.

The recent interest rate increases immediately raised concerns among consumers that the market would cool down as the cost of borrowing increased. Rampant speculation and consumers jumping from house to house while rapidly growing equity in an apparent housing bubble with resales continuing to climb 4.6% month over month despite average home prices climbing more than 29% year over year, per the Canadian Real Estate Association. This hot resale market helps keep housing prices high as consumers reinvest their capital gains in new homes in desirable or expanding regions. With a second and likely third rate increase coming, many consumers feel pressure to get in on the frenzy before it cools. Everyone wants to see prices continue to climb for them to reap profits from a sale but also hope to see more stability or decreases so they can find their next real estate deal. However, thanks to the Canada Mortgage and Housing Corporation (CMHC) the requirements for mortgage applicants ensure there will not be a spike of home owners who can’t afford the new rates and must turn over properties at a discount. For real estate agents and home buyers, these signs point to a slowing of real estate sales but prices should only stabilize and may even continue to increase in desirable areas like St Catherine’s where small town life can still come at a reasonable price within driving distance of Toronto. For businesses in the region, the continued migration of remote workers means a bright future for both tourism but also local population growth to provide year round consumers who support local products and services.

Two crucial signals to watch over the coming months will be real estate listing activity and inflation. Over the past 3 months, agents across Ontario has started to see signs of the market stabilizing with inquiries and offers reducing even if sale prices have not. Consumers are becoming wary. While we mentioned the cost of borrowing as a factor, a crucial secondary factor is rising inflation and the purchasing power of the Canadian dollar. A majority of items on the Consumer Price Index have risen by at least 3% in the last year; a shocking development after two challenging years of Covid restrictions. With the annual inflation rate hitting a three-decade high of 5.7% in February, even consumers not looking to purchase a home will start to think twice about discretionary spending. The optimism from relaxed provincial Covid mandates is going to be tempered by this increased cost of goods and services, so large ticket purchasing is going to get a second look. The likely impact on the investment market is clear; during times of high inflation an investor starts to look for lower risk options until the volatility reduces and with such an uncertain future for the value of the Canadian dollar and the price of real estate, the conservative investor will look at historically stable options like industrial and commodity stocks where inflation can be a tailwind for investment growth. Real estate as an investment purchase will be a tougher decision for most but with price stability and continued population migration the Niagara Region is positioned to see the best of the market with continued steady price growth though at a more conservative pace.

Sources:
https://en.wikipedia.org/wiki/Regional_Municipality_of_Niagara https://worldpopulationreview.com/canadian-cities/toronto-population