EDMONTON REAL ESTATE MARKET UPDATE - OCTOBER 2022
The housing market in Edmonton is transitioning once again. We've already seen changes over the last 12 months; going from an aggressive sellers market, to what I'd consider a more balanced market today. Even though the frenzied market of earlier this year has slowed down, I feel this is a much more normalized market, one that we are used to here in Edmonton. There are a few factors that seem to be contributing to our current landscape, but before we get into that, let's take a look at some of the recent sales activity for the Edmonton market in the month of September.
Edmonton Real Estate Market For September 2022
Infographic from the Realtors Association of Edmonton®
The average prices for single-family homes was down by 0.9% compared to a month earlier, however, it was up 1.8% year over year.
For condos, the average price was down 0.5% month over month and 1.9% year over year.
Duplex/row housing saw the average prices increase of 6.7% month over month, with 14.3% year over year price growth.
New Listings On the Market
2,416 new listings which was an increase of 1.7% month over month
25,000 new listings Year to date, which was an increase of 4% compared to the same period last year.
There were 1,115 home sales in September. This is a decrease in home sales of 10.3% compared to the previous month.
Year over Year we saw a decrease of 14.9% with year-to-date sales reaching 15,000.
Average Days on Market
The average number of days on market for single-family homes was up from 37 the year before, to 46 in September this year.
Condo days on market increased slightly from 57 in 2021, to 58 in September this year
Duplex/row housing also saw an increase from 43 DOM (days-on-market), to 46 in September of this year.
Overall, all residential days on market saw an increase from 45 DOM in 2021, to 50 in September of 2022.
Buyers have found some reprieve from the over-active market earlier this year as the dust settles and we enter a more normalized and balanced housing market in Edmonton.
Sellers thinking about getting on the market now, need to be careful about overpricing their home based on home prices from earlier in the year and should be more conservative because of the higher level of new listings entering the market, along with reduced buyer activity. It is more important than ever to make sure your home is ready by staging it well and marketing it properly. Simply sticking a sign on the front lawn will not be enough. But sellers should also keep in mind that this is not uncommon activity for this time of year because the market naturally slows down as we head into the fall and winter months. With interest rates increasing as the Government of Canada continues to slow inflation, this will only cool things further.
As you can see in the stats above, home sales have come down again month-over-month, but remain up year-over-year. Also days-on-market has increase a bit across the board for all property types. One thing I will note is that the average selling price has not decreased, and I will discuss some reasons below as to why I think that is.
SOME KEY CONTRIBUTORS TO EDMONTON'S CURRENT REAL ESTATE MARKET
Rising interest rates will continue to do exactly as they were intended to and slow things down. The Government of Canada has made it clear that they plan to increase the over-night rate more while they work to slow the inflation rate. It is important to remember that the over-night rate affects the variable mortgage rates. These variable rates will increase as the government continues to raise the over-night rate which is currently sitting at 3.25% with many anticipating it could reach 4% by the end of 2022. Fixed mortgage rates are tied to bond yields, and although they too have increased, there are early indicators that these rates could decrease in 2023.
So what's the best play if buying a home while mortgage rates are higher?
Fixed Rate Strategy
Well, if I was thinking about getting into a mortgage today, there are a couple things I might want to consider. For instance, where are interest rates today, and where will they be going in the future? The Government of Canada has stated that interest rates are likely to stay high into 2024. If the economy slows at a faster rate than expected, we could certainly see these rates come down sooner, but to be safe, let's go with what they're saying. The common perspective is that going fixed for a longer term (5 years) is the safer play. Today, I might look at a shorter (2-3 year) fixed rate, so that my term is up around the time rates are expected to normalize again. Locking into a 5 years could result in over-paying once rates pull back. Now, it is important to note that we should not expect rates to come anywhere near what we were seeing during the Covid pandemic, but I have seen in multiple forecasts that a rate in the 3%'s is likely once the rates settle. Today a 5-year fixed rate sits around 4.85%. Also important to note is that even when buyers were getting the reduced rates of 2-2.5% the stress test made them qualify at 5.25% to make sure they could afford when rates inevitably went up. Weird right? It's almost like they knew it was coming...
Variable Rate Strategy
Another strategy you could consider is to go with the variable rate while they are still a bit lower what they could be in the future, but opt for the mortgage prepayment plan. For example, let's say your mortgage with the current variable rate was $1,750 per month, and your mortgage was on a 5-year fixed rate. That would bring things to about $2,000/month. With the prepayment plan on a variable rate mortgage, you are increasing your payment to approximately $2,000 per month. This additional $250 goes straight to your principal and helps you pay the mortgage quicker while the variable rate is lower. Once the variable rate increase, or catches up to what the fixed rate are, you are already paying the increased amount so the payment will stay the same, so you will not feel an increase but you will no longer have that extra bit of your mortgage payment hitting the principal because of the increased rate. Once rates pull back, you can go back to paying more principal, or opt for the lower rate and keep more cash every month based on the whatever the current rate is at that time.
Here is a great article I found explaining everything much better than I can.
*Make sure to discuss all of your options with your mortgage professional to see what is the best strategy for you.
Out of province buyer's continue to move to Alberta. In fact, according to recent reports, Alberta had seen the largest population increase since 2014, and it's the fourth consecutive quarter in a row showing growth. Much of the migration is coming from Ontario, but many also coming from British Columbia. Affordability, and opportunity is driving many to move to our province. The Government of Alberta has also been investing heavily in marketing to other provinces to bring people to our province, and it seems to be working! This will help keep Edmonton home prices more stable.
* Image from Alberta.ca - See the full report at https://economicdashboard.alberta.ca/NetMigration
What's Happening in the Edmonton Housing Market Compared to other Provinces across Canada?
The Edmonton market like others across the country has certainly seen some changes since earlier this year. The news headlines almost make it sound like the whole country's real estate market has gone plummeting. Well, I'm here to remind you that isn't exactly what has happened here in Edmonton. The truth is real estate markets like Vancouver and Toronto had a lot further to fall. Both markets were already skyrocketing due to hi demand, with low inventory, and with the help of the ultra low interest rates we saw during the pandemic, this was only exasperated. So when they pull numbers from across the country, they are heavily skewed by these two markets. Yes, the Edmonton and surrounding area markets did settle in comparison to the frenzied market earlier this year, but I would say it has normalized to what we were prior to the pandemic. Below is a graph from the Canadian Real Estate Association (CREA) showing the benchmark price for single family homes in Edmonton and Calgary Vs. Vancouver and Toronto since January 2005. As you can see, Edmonton and Calgary home prices have been much more stable over the past couple of decades, and I don't see this changing any time soon.
*Image from the Canadian Real Estate Association (CREA)
Although many are expecting a slower economy over the coming months, I expect Alberta will weather the storm better than the rest of Canada. With commodity prices still strong, and increased migration, Alberta, and more specifically Edmonton, will continue to be the resilient city and province we have always been. Our market will normalize compared to what we were seeing during the pandemic, but that, in my opinion, is not such a bad thing. And the higher interest rates we are seeing today will also subside. Whether buying or selling in a hot market, or cool market, it is important to have a strategy in place. If you would like to discuss your options, and strategize your next move, reach out! I'd be happy to chat.
Posted by Corey Sylvester
I will continue to watch the housing market, and update you on current market conditions.
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