5 Reasons Why The Ottawa Real Estate Market Isn’t In A Housing Bubble

Couple asking real estate agent if Ottawa is in a housing bubble

Lately, there’s been some buzz in the nation’s capital about a housing bubble, so we spoke to Paul Rushforth and asked him to clear things up for Ottawa home buyers. He addresses the confusion about housing prices and talks about the current state of the real estate market.

What Exactly Is A Housing Bubble?

The term “housing bubble” harkens back to what happened leading up to 2008 in the United States. Then, home prices rose unsustainably, fueled by demand and market speculation. As a result, real estate became overvalued, and homeowners with bad credit defaulted on subprime mortgages. This caused the “bubble” to burst, and home prices fell dramatically.

Housing Bubble?

Ottawa Is Not In A Housing Bubble!

Yes, we’ve experienced price acceleration recently, but is Ottawa in a housing bubble? Absolutely not, and there are many reasons why.

1. We’re In An Inventory Crisis

You can’t be in a bubble when experiencing an inventory crisis, and that’s what’s happening in Ottawa right now. We have very low inventory, and when housing stock is limited, prices won’t fall because there’s so much demand for the product.

Will prices skyrocket as they have? No, probably not. We expect to see modest gains in 2023, but price growth will be slow; it’ll be a much flatter market overall. (Things have already been pretty stagnant since the end of June.)

2. Are We Getting Closer To A Balanced Market?

Again, the answer is no. Things have slowed down, so they feel different, but we remain in a seller’s market due to our housing supply challenges. You have to consider the absorption rate. Here’s what that looks like:

In Ottawa, we need to have 4-6 months of inventory in a balanced market. That means, if no other homes hit the market, it’d take 4 to 6 months to sell all the properties. So if all our inventory can sell within 0 to 4 months, we’re in a seller’s market, and if it takes 6+ months to sell everything, we’re in a buyer’s market.

Today, we’ve got a 1 month’s supply for a residential property. And for other property types, like condos, it’s 1.2 months. This means one of our Ottawa housing predictions came true: we sit solidly within the seller’s market range and will stay there for a while. As a result, Ottawa will likely remain in an inventory crisis until the builders can get shovels in the ground and start building faster.

3. Mortgage Rates Are Rising

Another telltale sign we’re not in a housing bubble is that mortgage interest rates are no longer at historic lows. We still have low mortgage rates, but they’ve already gone up almost 1% over the last three months or so. When rates go up, it shows the economy is bouncing back. And when the economy is strong, there are more interested buyers.

4. We Still Have The Mortgage Stress Test

When we started to see an increase in house prices, the government of Canada introduced the mortgage test as a protection measure against a potential housing crisis. This stress test continues today.

Banks are required to check that borrowers can make payments at a higher rate than they’ll pay—just in case the market goes downhill. (Which it won’t.)

Currently, if you qualify for a mortgage at, let’s say, 2.5%, you still need to be approved for 5.25%. It’s a tactic the government established to slow down the market and reduce the risk of people defaulting on loans.

Unfortunately, the stress test also took many first-time buyers out of the Ottawa housing market.

Many mortgage brokers are trying to influence the government to drop the rate from 5.25 to something closer to 4.25. There’s no big fear of people losing their homes to delinquency mortgages today because many Canadians are carrying a lot of equity in their property right now. And, at a rate of 5.25, there’s not a lot of affordable housing; first-time homebuyers are struggling to get approved, preventing them from getting into the market.

5. Ottawa Isn’t Toronto or Vancouver

We don’t see fluctuations in average prices like other major Canadian cities do. It can be up 20% one year in Toronto or Vancouver and down 20% the next. That doesn’t happen here in Ottawa; we’re a government town, our salaries are high, our job market is really strong—it’s just a very steady, stable market.

If you look at what’s happened since the start of 2021, you’ll see that our average sale price went up to $117,000. We reached that height at the end of June. Since that time, we’ve corrected a bit; we went down by about $10,000. But overall, we’ve gone up quite a bit! Ottawa’s average home price hasn’t gone down since 1996, and that was only by 1.9%.

Wealth is being made in the real estate market right now. So you’re always going to get a return on your investment in real estate here in Ottawa.

6. The Media Still Thinks The Market Is Insane (But It’s Not)

Here’s the biggest issue: the media hasn’t caught up to what’s happening to Ottawa home prices.

It doesn’t matter who you speak to on the street; everybody still thinks the market is crazy. And the truth is, the market has been pretty flat since June.

We’re presently reaching back out to buyers that took themselves out of the Ottawa housing market in the first half of the year to explain this to them. Now is the time to get back into the market. The only problem we have now is there’s not much product to buy.

If the Ottawa Housing Market Has Changed, Do I Still Need An Agent?

Yes, buying a home is one of the biggest financial transactions a person will make in life. Having an experienced agent on your side will help you achieve the best outcome.

Paul Rushforth, Real Estate professionals, will help you navigate the recent price increases and the limited inventory of properties for sale in Ottawa. (We might even be able to show you residential properties that haven’t hit the market yet!)

Most importantly, we’ll help you get the best price for your dream home. You’re able to put conditions in now, whereas you couldn’t do that not too long ago. Our agents are trained negotiators, and we’ll work out the right terms on your behalf. And, when you buy a home with us, you’re protected by our Ottawa home buyer guarantee.

Connect with a Paul Rushforth agent and learn more today.

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