Question of the week:
Is a Housing Market Crash Possible Later This Year or Next Year?
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Hello folks, I have been waiting for about a year now waiting for detached prices to come down, so far it has not happened. I have seen many homes listed for over a year, but the prices have not come down. I am looking for a detached 2-car garage, 3/4-bedroom home in Barrhaven. With the recent government announcement regarding the $1.5M limitation and rate cuts, it seems like the price drops I was waiting for have been canceled. I see homes selling again within days in my area. Is the market really moving too quickly, or is this just the fall market for a couple of weeks, and then it will go cold again? Just looking for some sense to my decision-making and wait. Is there really a pricing crash possible later this year or next year?
Nick Answers Reddit
Every week, Nick answers a Redditor’s question about buying, selling, renting, investing or living in Ottawa. Send Nick your own questions on the website, on Reddit or on a YouTube comment!
Nick's Response
Thanks for your question, u/Altego_490! You’re not alone in wondering about timing the market and hoping for a price drop. While there could be a slight softening in the winter market (November through January) due to lower seasonal demand, there are a few key factors that make a significant price drop unlikely in Ottawa.
1. Government Policy Changes are Increasing Demand
- The recent adjustments to mortgage rules and interest rates have had a big impact. Changes to amortizations, insured mortgage limits, and interest rates are designed to stimulate demand by making it easier for buyers to afford homes. This is particularly true for higher-priced homes that are now more accessible to a larger group of buyers.
- As you’ve noticed, homes in your area (Barrhaven) are selling quickly again. This could be a sign of pent-up demand. When these policies increase affordability for buyers, you may see prices stabilize or even rise slightly, as more people can now enter the market at higher price points.
2. Waiting for a Market Crash May Not Be Effective
- Trying to time the market is a risky approach. While waiting for prices to drop might seem like a good idea, factors such as government interventions, interest rates, and overall demand could prevent a significant crash.
- My advice is to focus on finding the right home that meets your needs and fits your budget. If the home checks your boxes and you can afford it, that’s a win. Real estate is a long-term investment, and Ottawa’s market is resilient. It’s better to buy the right home now than to wait for uncertain price drops.
Additional Question
What is the $1.5M Limitation?
Nick’s Response:
Great question! The $1.5M limitation refers to a change in insured mortgages. Here’s how it works:
- Insured mortgages allow buyers to purchase homes with less than a 20% down payment. This type of mortgage requires the buyer to pay an additional insurance fee to protect the lender in case of default.
- Before the recent changes (effective December 15, 2024), only homes priced up to $1,000,000 were eligible for insured mortgages. This limited many buyers, especially in more expensive markets like Toronto and Vancouver.
- Now, homes priced up to $1,500,000 can be insured, allowing buyers to put down as little as 5% and making higher-priced homes more accessible to a broader group of buyers.
This change, combined with the new 30-year amortization options, makes higher-priced homes more affordable to a larger group of people, which puts upward pressure on home prices in the market.
How This Affects You in Ottawa:
- In Ottawa, while home prices are lower than in Toronto or Vancouver, the increase in the insured mortgage cap and extended amortizations will still stimulate demand. This, in turn, can lead to price stabilization or growth, especially in desirable suburbs like Barrhaven.
- Buyers who previously may not have been able to afford certain homes now can, creating more competition and reducing the likelihood of a major price drop.
Three Final Tips for Homebuyers in Today’s Market:
1
Be Ready for the Winter Market – While the market tends to soften during the winter months, don’t expect dramatic price drops. Winter can offer a good opportunity to buy if you’re ready, as there may be fewer competing buyers.
2
Focus on the Right Home, Not Just the Price – It’s tempting to wait for a deal, but the right home—one that fits your budget, needs, and long-term goals—is a better investment than gambling on a potential market downturn.
3
Understand New Policies and How They Affect You – Government changes to insured mortgage limits and amortizations can make higher-priced homes more affordable. It’s important to work with your mortgage broker or real estate agent to understand how these rules affect your purchasing power.
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