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Home Owners, Sellers, BuyersPublished July 5, 2022
The Shift. Appreciation, Depreciation or Deceleration?
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The Shift. Appreciation, Depreciation or Deceleration?
There is a sense of panic in the air for sellers right now. Most are worried that they missed their chance – that prices will take a deep dive and that the market will crash.
Buyers are breathing a sigh of relief that finally bidding wars are slowing down or non-existent and inventory is climbing so there is better chance of finding (and getting an accepted offer on) the house of their dreams.
Let’s dive into these issues and the reality of the market
1. Low housing inventory is causing home prices to rise.
The supply of homes available for sale needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation.
As our market data shows our inventory is still low. Our June Statistics indicate we have 1.5 months of inventory. Prices are rising because there is healthy demand for home ownership which exceeds the supply of homes for sale which is keeping house prices high.
2. Lending rates have gone up, as planned by the government to slow the housing market down to a more stable environment.
3. Inflation is at an all time high and everyone is adjusting to the new reality of this. The Bank of Canada’s strategy of rapidly increasing its key interest rate in an effort to tackle skyrocketing inflation will likely trigger a recession. 1
What we are experiencing right now is a lull as everyone – buyers and sellers adjust to the shift.
What this means for sellers
If you are thinking of selling this summer today’s housing market is showing signs of a shift back toward more pre-pandemic levels. When conditions change, following the trends and staying on top of new information is crucial when you sell.
Experts in the real estate industry use several terms when they talk about what’s happening with home prices. And some of those words sound a bit similar but mean very different things. To help clarify what’s happening with home prices and where experts say they’re going, here’s a look at a few terms you may hear:
- Appreciation is when home prices increase.
- Depreciation is when home prices decrease.
- Deceleration is when home prices continue to appreciate, but at a slower pace.
For starters, you’ve probably heard home prices have skyrocketed over the past two years, but homes were actually appreciating long before that.
Home Price Deceleration Doesn’t Mean Home Price Depreciation
As the graph shows, houses have gained value consistently since 2019. But since 2020, the increase has been more dramatic as home price growth accelerated.
So why did home prices climb so much? It’s because there were more buyers than there were homes for sale. That imbalance put upward pressure on home prices because demand was high and supply was low.
Where Experts Say Home Prices Are Going
If you’re a buyer or seller in today’s market, you probably want to know what’s going to happen with home prices moving forward. Will they continue that same growth path or will home prices fall?
In today’s housing market, demand for homes continues to outpace supply, which is keeping the pressure on house prices, so don’t expect house prices to decline
Bottom Line
Experts forecast price deceleration, not depreciation. That means home prices will continue to rise, just at a slower pace. Let’s connect so you can get the full picture of what’s happening with home prices in our local market and to discuss your buying and selling goals.
What this means for Buyers
There is no denying that the housing market has delivered a fair share of challenges to home buyers over the past two years. Limited supply combined with the intensity and frequency of bidding wars. But those two things have reached a turning point.
The number of homes have increased this year and more so this spring.
New listings–a measure of sellers putting homes up for sale–were up 9.7% above one year ago. Home sellers in many markets across the country continue to benefit from rising home prices and fast-selling homes. That’s prompted a growing number of homeowners to sell homes this year compared to last, giving home shoppers much needed options.
There has been a pickup in the inventory that we’ve seen recently, but it’s not from a big increase in new listings . . . but rather a slowdown in the pace of sales ( -6.1%). And remember that months’ supply measures the inventory of sale relative to the pace of sales. Same inventory, fewer sales, means more months’ supply.
With rising inflation, mortgage rates and inventory growth, buyers have a better than expected chance to find a home.
How This Impacts You
The combination of more homes coming onto the market and a slower pace of home sales means you’ll have more options to choose from as you search for your next home. That’s great news if you’ve been searching for a while with little to no luck. Just remember, there isn’t a sudden surplus of inventory, just more homes to choose from than even a few months ago. So, you’ll still want to be decisive and move fast when you find the right home for you.
And when you do, you may be faced with less competition from other buyers too. If you’ve been waiting to jump into the market because the intensity of the bidding wars was intimidating or if you’ve been outbid on several homes, this moderation could help make the home buying process a bit smoother. It’s not that it’ll be easy or that bidding wars are a thing of the past – that’s not the case. But it won’t feel nearly as impossible.
Source: Globe and Mail
Bank of Canada
Nova Scotia Association of REALTORS®
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