Ottawa’s resale housing stock began creeping up in August after taking one of the steepest plunges in Canada over the past decade – but a prominent local realtor suggests the market will likely tighten again once inflation stabilizes and the central bank stops hiking interest rates.
“We’re starting to see inventory rise, but it’s artificial,” Paul Rushforth, owner of Ottawa brokerage Paul Rushforth Real Estate, told OBJ on Monday afternoon.
Rushforth’s comments came in the wake of a report from real estate firm Re/Max released earlier Monday that said there were just 3,175 active listings in the nation’s capital in July.
That's 42 per cent below the city's 10-year average of 5,465 and nearly 70 per cent lower than the 9,436 homes that were on the market in July 2015, the decade-high total for the month.
But local agents note that Ottawa’s housing inventory has been steadily rising throughout 2022, from about one months’ supply earlier in the year to almost three months’ supply in August, as the Bank of Canada has jacked up its benchmark rate to 3.25 per cent in a bid to rein in inflation and prospective buyers have pulled back from the market.
"Nobody’s buying because the interest rates are so high. Eventually, those interest rates will go back down, and then people are going to (scramble) trying to buy everything up."
“I try to check in every day with the number of new listings and am often surprised,” said Deb Burgoyne, a broker at Royal LePage Team Realty and a past president of the Ottawa Real Estate Board, adding the city appears to be “heading toward a balanced market.”
However, Rushforth predicts the additional selection that buyers now enjoy could evaporate quickly once inflation is under control and rates start to fall once again.
“Nobody’s buying because the interest rates are so high,” the veteran broker said. “Eventually, those interest rates will go back down, and then people are going to (scramble) trying to buy everything up.”
Ottawa posted the second-largest drop in housing inventory of any big Canadian market over the past decade behind Halifax-Dartmouth.
Re/Max noted that Ottawa’s situation is hardly unusual – resale listings have fallen below the 10-year average in seven of Canada’s 10 largest metropolitan areas as new home construction has lagged behind population growth.
“Population growth and household formation have played a significant role in depleting inventory levels from coast to coast over the most recent decade, triggering chronic housing shortages in large urban centres that resulted in mini 'boom' and 'bust' cycles,” Re/Max president Christopher Alexander said in a statement.
“If we don't move now to build more housing in the current lull, it's expected that this same scenario will continue to resurface over and over again.”
Local housing starts surge
Builders in the National Capital Region have stepped up efforts to address the housing shortage in recent months, starting work on a record 2,130 new units in July.
But Rushforth said even the recent surge in construction wouldn’t be enough to offset the flood of demand for homes should interest rates once again begin to fall in 2023.
“Our largest cohort, which is the millennials, they’re in their peak buying time,” he explained. “So when interest rates do come down, we definitely are well below (average) inventory levels, and there’s going to be a bit of a flurry again, I believe, over the next 12 to 18 months.
“Then we might see more pent-up buyer demand and we might go through a mini version of what we went through in 2021.”
After soaring more than 45 per cent over the past three years amid a dwindling supply and unrelenting demand, Ottawa home prices have begun to level off over the past six months.
Still, Rushforth said it’s still too early to predict exactly where the market is headed over the longer term.
“I think everyone’s sort of playing that wait-and-see game,” he said. “I think it’s (not) going to be until the early spring, maybe March, April, where we really realize which way the market’s going to go. It all depends on where the inventory is and where the mortgage rates are. If people can’t afford to buy, it doesn't matter how much inventory you have.”
No matter what happens, he believes double-digit year-over-year price increases – which were a monthly occurrence in 2021 and early 2022 – are unlikely to become commonplace again any time soon.
“The crazy increases over the past two years, I think are a thing of the past,” Rushforth said. “I don’t think we’ll ever see that again. I think we’re going to get back to a more normalized Ottawa real estate market.”