What is a Balanced Market?

Over the last couple of years, market conditions have been tilted heavily in favour of sellers. But with Canadian housing market conditions expected to shift this year, you may be wondering, what is a balanced market? Let’s explore recent history, and what this recent change means for you.

At the height of the market during the pandemic, many Canadian cities experienced skyrocketing home prices, from single-family residential properties in major urban centres to townhomes in rural communities. In the process, prospective homeowners also had to endure intense bidding wars, causing some buyers to ditch conventional homebuying best practices, including home inspections. During this time, the Canadian real estate market transformed into a seller’s paradise thanks to historically low mortgage rates.

But now that the Bank of Canada (BoC) is on an inflation-busting crusade of raising interest rates and trimming its enormous balance sheet, Canada’s housing industry is witnessing a moderation, and many regions are expected to (or have already) moved toward balanced market conditions.

So, what is a balanced market, exactly? Let’s dive deeper into what the current real estate market looks like for buyers and sellers.

What is a Balanced Market?

There are three types of real estate markets that everyone needs to know:

• Balanced Market
• Buyers’ Market
• Sellers’ Market

Every possesses its own traits and trends that may or may not benefit homebuyers or sellers. Indeed, there are a plethora of contributing factors that can impact the Canadian real estate market.

A balanced market consists of supply meeting demand. In other words, the number of homes for sale is equal to the number of people trying to purchase properties.

How can you determine if a market has returned to balance? There are a few metrics and developments that participants should consider monitoring:

• Stable residential property prices.
• Homes are sold at or near the asking price.
• The number of sales matches the five- or ten-year averages (or between 45 and 90 days).
• Transactions occur within a reasonable time span that is neither too long nor too fast.
• For nearly a year now, the national housing sector has been inching toward balanced conditions.
• Economic trends: inflation, unemployment, and the GDP growth rate.

So, is this really happening throughout Canada?

According to the 2023 Canadian Housing Market Outlook Report, nearly two-thirds (60 per cent) of regions are expected to shift to balanced or buyers’ markets in 2023.

Here are some of the regional markets that are anticipated to become balanced this year:

• Greater Toronto Area (GTA), Ontario
• Mississauga, Ontario
• Winnipeg, Manitoba
• Regina, Saskatchewan
• Calgary, Alberta
• Greater Vancouver Area, British Columbia.

Only a few major urban centres are expected to remain a seller’s market:

• Halifax, Nova Scotia
• Montreal, Quebec
• Ottawa Ontario

“It’s good to see the majority of markets moving toward more balanced conditions, which is typically defined by 45 to 90 days on market. This is a much-needed adjustment from the unsustainable price increases and demand we saw early in 2022,” said Christopher Alexander, the President of RE/MAX Canada, in the report.

Although industry observers anticipate the slowdown to persist in the first half of 2023, experts are pencilling a “regular pace of activity” in the third and fourth quarters, says Elton Ash, the Executive Vice President at RE/MAX Canada.

“We’re confident that as economic conditions improve and the market continues to even out into Q3/Q4 2023, a more-regular pace of activity will resume,” Ash said in a statement. “It’s especially critical during challenging economic times, that staying informed and working with an experienced real estate professional can help Canadians clarify some of the unknowns, help them find a home within their means, and ultimately make the best decision possible.”

What Can Buyers and Sellers See in 2023?

So, what does this all mean for buyers and sellers this year? The RE/MAX outlook suggests the national average price is projected to tumble 3.3 per cent, while sales are forecast to rise in more than one-third (34 per cent) of housing markets analyzed.

This is positive news for the 54 per cent of Canadians who say their financial situation will remain stable throughout the year. At the same time, it should be pointed out that 38 per cent of Canadians are not confident in their financial situation, which is heightened among non-homeowners and low-income households.

With the central bank likely to continue raising interest rates, albeit at a slower and smaller pace, nearly half (45 per cent) are worried that rate hikes will affect their ability to buy or sell a home in 2023.

“Many Canadians have understandably expressed hesitancy about engaging in the real estate market early in 2023, in the wake of rising interest rates and broader economic uncertainties,” Alexander added. “However, despite this, a greater number of Canadians consider real estate to be a solid long-term investment compared to this time last year.”