What Would a Recession Mean for Canadian Real Estate in 2023?
Many fear a recession in 2023—but is one inevitable? Let’s break it down. What is a recession? The most widely-accepted Canadian meaning of “recession” comes from the C.D. Howe Institute Business Cycle Council. The Council defines a recession as “a pronounced, persistent, and pervasive decline in aggregate economic activity.” Generally, the decline has to substantially affect multiple economic sectors for an extended period of time to be considered a recession. In Canada, the final call comes down to the federal government. A recession—if and when it happens—is announced by the Bank of Canada or the minister of finance. This definition is helpful if you always have your eye on the economy, but the average person recognizes a recession more by its effects. In a significant recession, the public generally experiences job loss or lower job security, in addition to less bargaining power in the workplace. Those searching for a first job or switching careers during a recession will find their options reduced and their starting salaries lower than they would be otherwise. This can impact your wealth accumulation for years to come as you catch up to the salary you could’ve had in a stronger economy. Additionally, your retirement and other investment accounts can take a hit during a recession due to rocky markets. It’s also likely that you’ll have a more difficult time borrowing money. Like everyone else, financial institutions tighten up during an economic decline. This includes stricter rules, lower credit limits, and fewer types of credit available. Are we in a recession? As of now, no. Despite widespread fears, the Canadian economy is not currently in a recession. After pausing its rate hikes in January 2023, the Bank of Canada is aiming to avoid a full-blown recession and head into what’s known as a “soft landing.” Soft landings are part of the economic cycle. If you imagine the economy as a series of peaks and valleys, a soft landing is a valley—but it’s shallow when compared to a major economic downturn. Central banks try for a soft landing when they take action on inflation by increasing interest rates, like the moves we’ve seen from the BoC. The idea of a soft landing is to slow an overheated, rapidly inflating economy without a severe and painful recession. Where is the economy headed in 2023? Here are opinions from top economic experts: BDC According to BDC, “a recession is still avoidable for the Canadian economy. However, 2023 will be shaped by growth below the economy’s potential and a great deal of uncertainty.” The bank suggests that the Canadian economy will slow down, but not fall into a full-blown recession. BDC notes that although average household savings are still higher than they were before the pandemic, household spending will decline. With talks of a recession, many Canadian consumers will become more cautious. Pierre Cléroux, Vice President of BDC, says, “Our most plausible scenario is the Canadian GDP growing by 0.5% in 2023, with one or two negative quarters here and there.” Deloitte Looking at current global conditions, including the state of European and U.S. economies, economists from Deloitte predict a recession in 2023. The financial firm notes that if the U.S. enters a recession, Canada will be hard hit due to our dependence on trade with the states. The firm also expects higher interest payments on household debts to put Canadians in a pinch and lower consumer spending. However, it concludes that “we still expect the recession to be relatively mild and short-lived by historical standards.” World Economic Forum In January, the World Economic Forum released results in which two-thirds of surveyed economists predicted a recession in 2023. Their Chief Economist's Outlook, January 2023, stated, “Global growth prospects remain anaemic and global recession risk is high.” Bank of Canada Speaking to CTV, Tiff Macklem, Governor of the Bank of Canada, says he isn’t ruling out a “mild recession.” While the Bank is not predicting a recession, Mackelem notes that it is possible. The Bank has paused its interest rate hikes, but it may take some time to see the full effects of higher interest rates on the Canadian economy. If inflation doesn’t go down as predicted, the Bank may raise interest rates again. So, is a recession coming? It’s possible, but not inevitable. Some economists are predicting one by the end of 2023, and there are many variable factors that affect the economy outside of our control. Big ones right now include COVID-19 and supply chain disruptions, climate change, the war in Ukraine, and more. Even the experts have uncertainties, and as Deloitte writes in its quarterly report, “the economic outlook remains clouded in uncertainty.” Most experts are forecasting some kind of economic slowdown—but if it’s a recession, it’s likely to be a “recession with a small r.” What’s that? It’s a short-term, mild period of economic contraction. It can be uncomfortable, but it doesn’t have the far-reaching or devastating effects of a major Recession like the one in the early 1980s or the late 2000s. Most experts believe that the strength of the labour market will be a major factor in preventing a severe economic downturn. There have been high-profile layoffs in the tech industry, and consumer spending has started to slightly slow—but the unemployment rate is very low, job growth has been strong, and there are still more available jobs than there are available workers. Why is this important? Because usually, “Rising unemployment is one of a number of indicators that define a recession. It also makes the downturn worse” (McGrath, 2022). That’s why economists will be closely monitoring the job market throughout 2023. As of February 2023, the Canadian job market is still beating expectations. The unemployment rate remained at 5%, and average hourly wages rose on a year-over-year basis. What would a recession mean for real estate in 2023? A recession is never good news—but for the current real estate market, it’s not all bad. First, interest rates will come down if the economy heads into a recession. The BoC has hiked up rates to slow consumer spending and reduce inflation, but if the result of that is a recession, rates will go down again. For buyers, that means mortgages will become more affordable—and since current forecasts don’t predict a huge downturn in the job market, you’re less likely to experience job loss that will affect your ability to buy. If you’re selling, affordable mortgages are good for you too. Buyers who have been sitting out of the market waiting for rates to drop will jump in, which means it could be easier for your real estate agent to find the right fit. Second, buyers are likely to find lower home prices. Competition tends to be lower during a recession, which allows prices to drop. Additionally, a higher number of sellers are likely to reduce their prices to sell quickly or to get out of a mortgage. However, if you’re selling during a recession and your personal economic situation is good, you can take your time. How should you plan your sale when the economy is changing? Tell us what you’re trying to achieve, and we’ll help you get there.
How Has the Market Shift Impacted Your Home’s Value in Canada?
Many homeowners worry about recent real estate headlines and talk of home pricing declines. You may wonder, "Will the value of my home plummet?" — especially if you plan to sell your home in the coming months. You might also wonder if real estate market conditions are so bad that you won't be able to sell at a good price. Should you hold off selling altogether and wait for better times to return? It's worth examining these conditions in more detail. Let's dive into what's really happening to Canadian real estate beyond the sensationalist headlines. Why Deceleration in Home Pricing Does Not Mean Depreciation in Home Values There’s no question that the real estate market of 2022 differs from 2021. Last year was record-breaking for the Canadian real estate market, surpassing the previous record for all-time highest home sales by 114,000 units. The high demand also caused home prices to soar, increasing by 26.6% by the end of the year. Yet, as interest rates rose and Canadians faced the realities of a post-pandemic economy, the market shifted. Although prices remain high, we began to see consistent month-over-month price declines in 2022. In late spring, houses sold below their list price by as much as $200,000 – a headline that would have been unthinkable in 2021. Does this downward trend in home price growth signal a depreciation in home values? The great news for sellers is that it does not. The main difference between home prices and home values is that home prices fluctuate over the short term, depending on economic forecasts and unforeseen circumstances that influence the economy. On the other hand, home values fluctuate much more slowly over longer periods. A home price is the price buyers are willing to pay for a home due to several variables. A home value is more stable over time, depending on the size and type of house you have, its condition, and its location. Home values in some areas will be relatively impervious to short-term economic shocks, while less economically stable areas may experience more significant fluctuations during challenging times. Hiring an experienced local real estate agent will help you determine how much the current conditions might affect your home price and whether you should sell right now or hold off for a few months. Why 2022 Is Not as Bad for Home Pricing as Everyone Thinks The past three years illustrate this point perfectly. Home prices rose at unprecedented rates during 2021 mainly because no one was selling during the Covid shutdowns of 2020. Pent-up demand for homes combined with a decimated inventory of for-sale listings caused home prices to skyrocket to levels never seen before. There weren't enough homes going around, leading to a buyer frenzy. By contrast, 2022 has been a relatively tough year for the real estate market. Canada’s economy is slowing due to several factors, including rising living costs, inflation, and mortgage interest rates, making housing less accessible to buyers. However, it's crucial to put this slowdown into a longer-term perspective. If current real estate market conditions are compared to other years in the past decade rather than the outlier year of 2021, things begin to look less alarming. To put things in perspective, the national average price for homes sold in September 2019 was $515,500. The national average for September 2022 was $640,479. It’s important to note that while the market is slowing down, home prices are still increasing. And although this year is not 2021, home demand remains strong.
Top 10 Factors To Consider When Buying A Cottage
Purchasing a cottage is a dream for many Canadians who long for a peaceful retreat to unwind and create lasting memories with family and friends. Ontario, with its picturesque lakes and lush forests, offers numerous options for those looking to invest in a cottage property. However, there are important factors to consider before jumping into this exciting endeavour. Here are the top 10 things to keep in mind when searching for your perfect cottage. 1. Location, Location, Location Finding the right location for your cottage is crucial. Consider the distance from your primary residence, as shorter commutes can lead to more frequent visits. Research the local community and amenities, such as grocery stores, medical facilities, and recreational opportunities. Decide whether you want a secluded retreat, a bustling lake community, or something in between. 2. Waterfront vs. Non-Waterfront Waterfront properties are generally more expensive but offer the idyllic experience of enjoying water activities right at your doorstep. Non-waterfront properties may be more budget-friendly but could require additional travel for water access. Investigate the quality of the shoreline, water depth, and any potential flooding risks. 3. Seasonal vs. Year-Round Seasonal cottages are typically more affordable but may have limited access or functionality during colder months. Year-round cottages often have better insulation, heating systems, and road access, allowing for use throughout the year but potentially at a higher purchase price. Consider your desired usage and weigh the pros and cons of each option. 4. Legal Restrictions and Zoning Regulations Familiarize yourself with local zoning bylaws, which may restrict building or renovation possibilities. Investigate shoreline setbacks, conservation authority regulations, and building permit requirements. Check for easements or rights-of-way that may grant access or use rights to neighbours or utility companies. 5. Financing Options Explore financing options, such as traditional mortgages, home equity lines of credit, or cash-out refinances. Keep in mind that some lenders may require larger down payments or charge higher interest rates for vacation properties. Consult with a financial advisor or mortgage broker to find the best solution for your situation. 6. Property Taxes and Insurance Property taxes and insurance for cottages can be more complex and costly than for a primary residence. Understand the factors that affect these costs, such as distance from emergency services, infrequent occupancy, or reliance on wood stoves. Research additional insurance coverage for waterfront properties or short-term rentals, if applicable. 7. Hidden Costs Owning a cottage comes with hidden costs, such as regular maintenance, repairs, utilities, and potential expenses related to septic systems or well water. Factor these costs into your budget and long-term financial planning. 8. Rental Potential Consider the possibility of renting out your cottage as a vacation property. Short-term rentals can provide supplemental income but may require additional time and effort to manage. It’s important to familiarize yourself with local regulations governing short-term rentals and consult with a lawyer or accountant to ensure compliance. 9. Potable Water and Water Systems Assess the availability and quality of potable water at the cottage property. Many cottages rely on well water or lake water, which may require treatment or purification to ensure it's safe for consumption. Check the existing water system for its age, capacity, and maintenance history. If a well is present, inquire about the depth, flow rate, and recent water test results. Factor in the costs of any required upgrades, ongoing maintenance, or water testing to ensure a safe and reliable water supply for your cottage. 10. Septic Systems and Maintenance Examine the septic system on the cottage property, as it plays a crucial role in managing wastewater. Determine the age, type, and capacity of the system, as well as its maintenance history. Ensure the system has been inspected and complies with local regulations. Be aware of the potential costs associated with septic system maintenance, repairs, or replacement, and educate yourself on proper usage and care to avoid future issues. Regular inspections and professional servicing are essential to maintaining a functional and environmentally friendly septic system at your cottage. Conclusion Investing in a cottage is an exciting opportunity that can provide years of relaxation and enjoyment for you and your loved ones. By carefully considering these 10 factors, ranging from location and water access to potable water and hidden costs, you can make an informed decision when purchasing your dream cottage. Remember to engage the services of professionals, such as real estate agents, lawyers, and financial advisors, to guide you through the process and ensure a smooth and successful purchase. Happy cottage hunting!
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