Ruth Saldanha: After an astronomical rise in house prices over the past couple of years, so far this year, Canadian property prices have fallen and fast. Now, this has been a shock to many. It might be helpful to remember, though, that despite the correction, prices are still way higher than they were back in 2020. So, at this point, are more declines likely? And is this correction a buying opportunity? John Pasalis, the President of Realosophy, is here today to tell us.
John, thank you so much for being here today.
John Pasalis: Thanks for having me.
Saldanha: Now, prices have corrected, and the market space of growth has kind of cooled somewhat. Do you think a further slide is likely from here on?
Pasalis: I mean, very possible because, I mean, right now, we haven't really felt the full impact of higher interest rates. A lot of buyers were buying have rates holds based on interest rates they got 60 to 90 days ago. So, we haven't really felt that impact of higher rates. I think as we move to the fall market, we're going to see how many buyers can actually afford with five-year fixed rates close to around 5% and as the Bank of Canada raises rates again, we're going to see how many people can actually afford today's high prices at these much higher rates.
Saldanha: Everyone in Canada obsessively tracks real estate prices, and individual cases of distressed sales have been amplified on social media. However, on average, prices are still much higher than from a year or even 18 months ago. Is the current situation as dire as many seem to think?
Pasalis: I mean, it is pretty dire for some of those people who are defaulting on their homes. Like even though prices are up year-over-year statistically, the biggest issue is that they've declined very rapidly since February, right? So, someone who bought a home in February or March, when they go to take possession in June, the bank says to them, well, the home is worth $100,000 or $150,000 or less than what you paid for it or 200,000, you know, this is the dynamics we're seeing in the market. And why we're seeing a relatively high number of buyers just walk away from their purchases because they can't get financing. So, it is dire. But these dynamics are relatively short-term because we had this rapid decline, and the rapid decline was due to a lot of distressed sellers who also needed to sell their home to afford the home they just purchased. But I think we're going to start to see less of that as we move to the fall market. There's going to be more stability. More people are selling their homes first before buying. So, we're going to see a lot less pressure on sellers. So, even if we see a decline in prices, it's probably not going to be as rapid as what we saw over the second quarter of this year.
Saldanha: On social media especially, people are calling this a disaster, though, others feel that it isn't that. So, do you think that we are headed into a kind of a disaster situation? And what do you think it will mean for us to actually get there?
Pasalis: I mean, it's still early and it's very hard to say. Of course, the future path of the housing markets is going to be really dependent on the future path of interest rates, which will also depend on where inflation is going. And if inflation stays high and interest rates stay elevated for a long-ish period of time and that leads to a deeper recession, then, yeah, I mean, things could get bad. But again, I think most economists are obviously, of course, expecting a recession. I don't think many are expecting it to be a very deep and sustained one and not so we would need to see a deep decline in prices, a market where you see distressed sellers due to job losses, that type of environment. And hopefully, we don't get to that point, and I think most people aren't expecting us to get to that point.
Saldanha: Finally, with this correction, is it time for investors to consider buying real estate right now?
Pasalis: Well, that's a good question. I mean, the reality is prices are still high. I mean, even with this decline, we're still at October 2021 prices. So, it's hard to say that these prices are a deal. The reality is that they appreciated far more rapidly than they should have because of record low interest rates. But I do think at some point in the future whether it's in the next 6 to 12 months, if the market slows down further, I do think we're going to see investors sort of being a first pool of buyers who jumps into the market to kind of take advantage of lower prices, probably ahead of first-time buyers who are maybe a little bit more concerned and cautious. So, I think it's early, but we probably will see that maybe late this year or early next year.
Saldanha: Great. Thank you so much for joining us today with your perspectives, John.
Pasalis: Thanks for having me.
Saldanha: For Morningstar, I'm Ruth Saldanha.
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