Buyer Fatigue Surfacing in Canadian Housing Market?

Earlier this year, CTV News profiled an Ottawa couple who bid $400,000 over the asking price and still lost out on the home of their dreams. This was not the first time that they were outbid on a residential property in the nation’s capital, resulting in “frustration and fatigue.” Like many others hoping to engage in the Canadian housing market, they were apprehensive about taking a break and sitting on the sidelines as they witnessed the Ottawa real estate market skyrocketing.

On the other side of the country, one homebuyer lost out on a bidding war that resulted in a $1.715 million detached home in Burnaby being sold. How much over the asking price? About $216,000.

This has been one of the main themes in Canadian real estate over the last 18 months. From Vancouver to Toronto to Atlantic Canada, many young families and first-time homebuyers have been routinely priced out of the market, even after placing higher bids on detached and semi-detached houses in a major urban centre or rural community.

The phrase “buyer fatigue” has become more common. This term applies to home hunters who have been repeatedly outbid and left disillusioned by the process, or can no longer afford to achieve the dream of homeownership. But could a Canadian housing market that potentially reached its peak this past spring be rejuvenated now that demand seems to be easing and prices are stabilizing? Real estate agents and market analysts have mixed opinions.

Buyer Fatigue Surfacing in Canadian Real Estate

According to Statistics Canada, real estate markets across Canada are showing “signs of moderating,” attributing the downward trend to “buyer fatigue,” despite the notable pent-up savings that were accumulated during the once-in-a-century global health crisis.

“The current market slowdown, partly due to buyer fatigue, has started to manifest in the housing market, with fewer buyers ready to engage in bidding wars,” the statistics agency wrote in its July 2021 report.

Moreover, the federal agency explained that, with public health restrictions being gradually lifted and “many workers return to offices,” the desire to acquire a residential property “could start subsiding.” And, despite the Canadian housing market reaching sales and price highs, indicators of moderation “have begun to appear over the past few months.”

Study authors appear to have based their conclusions on data from the Canadian Real Estate Association (CREA), noting that sales activity was 92 per cent down in all local markets on a month-over-month basis in June. CREA figures pointed to the deceleration of month-over-month growth in housing prices, rising just 0.9 per cent to finish the second quarter of 2021. On the supply front, new residential listings tumbled 0.7 per cent, marking the third consecutive monthly drop in new listings across the country.

“Further decreases in home prices may be observed in the fall if the number of sales continues to decrease faster than available listings,” the agency stated in its report. “Despite the month-over-month deceleration in new house price increases, year-over-year gains remained near record highs (+11.9%) in June.”

A Wait-and-See Approach in the Canadian Housing Market?

Last summer, there was a different problem afflicting many different real estate segments, particularly condominium owners: seller fatigue. Because the coronavirus pandemic injected the housing market with a huge supply of condo units amid lacklustre demand, owners who got in the market in the last couple of years found themselves with negative equity. As a result, they could not even afford to rent out their suites to make their monthly mortgage payments, since market rents had fallen below what they were paying on their mortgage.

Fast forward to the present. The condo market is heating up again, and a little bit of patience might have paid off for these owners.

Indeed, this wait-and-see approach might be necessary for the broader Canadian real estate market. With some Canadians suffering from buyer fatigue, many will have no option other than to sit on the sidelines and wait for market conditions to stabilize. Be it from demand exhaustion or the fallout from mortgage stress tests, homebuyers will likely monitor the situation and see what happens over the next 12 months. Depending on where they might be interested in buying, they could see price growth begin to ease, particularly if construction activity escalates and fresh supply comes online.

As the Royal Bank of Canada (RBC) recently stated in a research note, the frenzy was unsustainable. RE/MAX Kelowna realtor Colin Krieg suggests, “it could be buyer fatigue. It can be exhausting being out there, competing with other offers and having your heart broken just to do it all over again.” But alas, what goes up, must come down. There is hope on the horizon for hopeful homebuyers across Canada.

Sources:

• Statistics Canada
• Straight
• CTV News
• RBC