The Real Estate Market is about to go off?

I recently attended a real estate conference and had the opportunity to sit in on a session with CREA economist Shaun Cathart. He made the case that the real estate market is going to improve and could do so quite quickly over the next year due to a combination of new mortgage rules, interest rates dropping and an overall shortage of quality supply. Let’s go through them:

New mortgage rules to be implemented on December 15th are a big deal. The new rules will increase the CMHC insured amount that a borrower can get from $999,999 to $1,500,000. Previously, you could purchase a house with 5% down up to 1 million, anything over that you needed to have 20% down as you could not get CMHC insurance. The new rule is now 5% on the first $500,000 and 10 % on the rest. This rule will have minimal impact in smaller markets where average prices are well below a million, but in larger markets like Toronto and Vancoubver it will make a difference. The 2nd rule is increasing the mortgage amortization period from 25 years to 30 years. Mortgage amortization is the length of time it takes to pay off the loan. 30 year options will reduce monthly payments, but increase the overall amount of interest one would have to pay. In a recent article written by Tracy Head, The Mortgage Gal she broke down how the changes would affect things with this example: To purchase a $500,000 home with a 25-year mortgage, your family income needs to be about $112,000, with a 30-year mortgage, your income needs to be around $105,000. OR if your family earns $112,000, you can afford a $500,000 home with a 25-year mortgage. If you go for a 30-year mortgage, you could afford a $535,000 home. That extra 35k can make a big difference for buyers.
The bank of Canada is dropping interest rates at a faster rate than we thought. Shaun shared an interesting graph. One that showed how much The Bank of Canada was expected to drop the interest rate at various times over the last year. One year ago rates were expected to drop 3.5% by 2027. As of September 23rd they are expected to drop down to 2.5% by mid 2025, that is huge news! Check out the image below.

An overall shortage of supply can be seen in what the national month of inventory sits at which is hovering in balanced market territory but much closer to a sellers market then a buyers market. The combination of a fast reduction in rates, with these mortgage rules could result in the month of inventory tipping quickly into a sellers market.

He closed with some interesting stats that make the case we may have hit the bottom of the market. New listings spiked for the month of September, but a big change in the amount of sales has taken place in the 7 day moving average chart for September. This is strong data that does point to tightening market in the coming future. However, people should not assume prices will skyrocket again quickly as there is a reason rates are dropping quickly as people are struggling. There are more listings on the market and the overall sentiment is not great amongst buyers, but the idea that we may have seen the bottom is a good one.

My thoughts? There remains a lot of inventory for sale in the Grey Bruce & the market is challenging with 10 year highs for inventory. Watch my most recent market update below.

Sources:

The Canadian Real Estate Association

Tracy Head

Canadian Mortgage Trends