Don’t Panic. Here’s Why There’s No Housing Bubble.

We know there’s a lot of concern amongst homeowners about the health of the market and what to expect in the coming year. There have even been some scary headlines about the possibility of a crash, leaving Canadians worried about the sustainability of prices overinflated by the pandemic housing boom. 

The past three years have been full of change and uncertainty – both in the market and in the world around us. As we prepare for 2023, we’re going to spend our last blog of the year exploring the idea of a Canadian housing bubble, and hopefully set buyers, sellers, and prospective homeowners’ minds at ease about the future of Simcoe County’s market. 

Here’s why we feel that Canada’s not in a housing bubble on the verge of popping – and what to expect from the market instead. 

What is a housing bubble? 

First, let’s take a look at what a housing bubble actually is. A bubble occurs when housing prices rise rapidly and unsustainably, creating a supply of homes that are selling for an overinflated value compared to the average income. The last time the market experienced a bubble in Canada was in the 1980s before finally popping at the tail end of the decade after high selling prices and a mortgage rate that reached a staggering 18%. Since then, the market has experienced highs and lows that have been tempered by corrections. In 2017, for example, the market was similar to this recent season – prices were inflated, especially early on in the year. As sellers began to flood the market with inventory to catch the wave of higher selling prices, supply increased and demand decreased, forcing a market correction that deflated exuberant housing prices. The average home price dropped over the years leading up to the pandemic and the market explosion that came with it.  

Supply and Demand 

As we saw in 2017 and the corresponding period of correction, the market behaves in a cyclical manner and is driven by supply and demand. Hot markets don’t last forever, and periods of inflated prices and low inventory are followed by periods of low prices and high inventory. The old adage “nothing lasts forever” is the name of the game in the housing market. Just like we saw a spike in prices in 2020, we’re seeing the subsequent market cooling that typically follows a red-hot seller’s conditions. 

Additionally, while low supply has driven prices up, it also means that the market simply does not have enough inventory to experience a crash. The current adjustment we’re seeing in the market was expected and no different from past periods of cooling – a far cry from the kind of chaos you’d expect with a bursting bubble.

The Pandemic Boom 

The explosion in the market brought on by the pandemic was a fantastic time for sellers – for buyers and people trying to break into the market, it was a frustrating period of low inventory, bidding wars, and prices that put home ownership out of reach for many Canadians. The two years of red-hot conditions also brought concerns about the sustainability of the housing market and the possibility of a bursting bubble. 

The pandemic was a unique situation that altered the fabric of our daily lives, and thus had an unprecedented impact on the economy and housing market. Barring a second world event with as many far-reaching consequences as COVID-19, we will likely not see the record high prices we saw throughout 2020 and 2021, nor record low interest rates. 

Home Prices in 2022

There’s no denying that home values have dropped in the latter half of the year. There was a 15.8% decline in the price of homes sold year-over-year in Barrie for the month of November, and a 4.4% decrease in November compared with October of this year. Although, when we zoom out a little to take in the bigger picture, the year-to-date sale overall price is up 12.8%, increasing from $740k in 2021 to $834k in 2022.

What’s coming in 2023? 

What can we expect to see in the market this coming year? 

As we’ve seen throughout the second half of 2022, prices will likely continue to drop as interest rates rise, although in Simcoe County, we’re probably close to the bottom due to our low inventory levels. In markets where inventory is higher, more significant price reductions are expected; this will provide an opportunity for prospective buyers, making home ownership more accessible with more inventory to choose from. While interest rates will continue to increase, this will be offset by the house prices that haven’t hit bottom yet. This doesn’t mean sellers should despair. The demand for real estate is still there and more stringent mortgage requirements mean that people who are in the market are serious and ready. While those selling a home will net less than they would have at the beginning of 2022, most sellers also need to buy a property so they will pay less for their next home. If your situation is different and you’re concerned – let’s talk. We’re here to serve you.

Ultimately, even the most seasoned real estate experts can’t see into the future. That’s why it’s important to have an expert REALTOR® on your side, no matter what the 2023 market brings. Before you list your home or start house hunting, reach out to a professional and face whatever the new year brings with strategy and expertise. 

The real estate market is one that is always moving and changing. News outlets produce headlines that are designed to trigger an emotional response so you’ll read on, but that doesn’t always paint an accurate picture of the state of things. Our goal is to present the facts to our clients – the good, the bad, and the ugly – as honestly as possible because we are truly here to help. Peggy’s more than twenty years of experience in real estate and a frank assessment of the facts suggest that there’s no need to panic – we’re not in a housing bubble about to burst. The most significant challenge we do face will be how to get first-time buyers into the housing market. Stay tuned as we tackle this topic along with some practical mortgage education and advice in more depth in the new year. 

We wish you all a safe and joyous holiday season and a healthy, prosperous, and happy new year.