If you have been keeping track of the news coverage lately, you probably have noticed a slight trend in how the real estate market is getting reported. In a word, things sound scary. Rising interest rates, talk of a “housing crisis,” and the dreaded recession talk is enough to make anyone want to log off. 

However, looking at the history of Ottawa real estate and a look at the state of the real estate market before the pandemic, you might find that the news is not as bleak as the media wants us to believe. In fact, here at Chell Team, we think the outlook is actually quite a bit more positive than you read in the papers. 

Here’s why. 

Are you looking for up-to-date Ottawa real estate news and market insights? We publish a blog every month on the current market stats. Read past market updates here.

We are Still Following the Four Phases of Real Estate

The real estate market typically follows four main phases, repeating itself roughly every 20 years. Looking back at historic trends, we can pinpoint these phases almost exactly. Here is what you need to know about the four phases of real estate: 

Recovery 

The first phase (or the last phase, depending on how you look at it) is recovery. This is when the public is feeling a bit down about the economic outlook. It usually occurs right after a recession and is sometimes hard to define. New constructions are stagnant and vacancy rates are low, but there is a glimmer of hope that things might take a turn. 

Expansion 

Many experts say this is when the economy feels “normal.” Construction is booming, and unemployment is going down. Expansion can be defined as typically in the middle of a strong seller’s market in most cases. Housing supply is rising and demand for housing is also up.

Hyper Supply 

Housing supply has begun to exceed demand, creating higher vacancy rates and home prices decline. This is the point when the market begins to contract. Unemployment begins to rise as fewer construction jobs are needed due to an overabundance of supply. 

Recession 

A strong buyer’s market where housing supply heavily outweighs current demand. However, a recession is not necessarily a bad thing! Dropping prices could present a fantastic opportunity for buyers to make strategic real estate decisions that will help them down the road. 

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Learn everything you can about the Ottawa housing market before taking the leap. Here are a few blog resources to help you get started:

• Rising Interest Rates in Ottawa–What You Need to Know
• Strategies to Help First-Time Buyers Enter the Market
• Fixed Rate Vs. Variable Rate: Which Mortgage is Right For You

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Interest Rates are Still Historically Low

The Bank of Canada was created in 1935 as a result of the Great Depression. The central bank’s mandate includes maintaining our monetary policies around inflation, managing our financial systems, issuing currency, and acting as a fiscal agent for the Government of Canada. 

Since its inception, the bank has set target rates, now known as the Policy Rate. This is the interest rate at which banks borrow, and one of the main contributing factors to the “Prime Rate” used by financial institutions when lending money. 

The Policy Rate has fluctuated considerably over the past 87 years with some of the highest rates coming in the late 1970s on the heels of the global oil crisis, and in 2009 during the sub-prime mortgage financial crisis in the United States. 

The Bank of Canada famously slashed the Policy Rate to 0.25% at the start of the COVID-19 pandemic to protect the Canadian economy in a time of stress. It was always a temporary change that was always scheduled to eventually increase. 

As the economy recovers from the pandemic, the low interest rates have driven inflation up to record levels, which signaled that the time was right for interest rate increases. 

In the mid-1990s, the overnight rates were anywhere from 4.5% to 7% and in the early 2000s, the rate ranged from 3% to 4.5%. Today, after several interest rate hikes, the Policy Rate sits at 3.25%, which is a far cry from the double-digit interest rates we saw in the 1980s. 

Whether the market is up or down, you should always work with an experienced local real estate agent. Here are 6 reasons to buy a home with a local Ottawa real estate team.

Canada’s Mortgage Industry is the Most Regulated in the World

The steps to getting a mortgage in Canada are some of the strictest in the world. And that’s a good thing! A highly-regulated mortgage industry protects homebuyers from borrowing more than they can afford and can safeguard them against unexpected issues such as rising interest rates. 

Here are a few ways the Canadian mortgage industry protects homebuyers: 

• The mortgage stress test was implemented a few years ago, requiring banks to approve borrowers at a higher rate than they are actually getting. The purpose is to make sure the borrower can handle potential rate increases.
• Any mortgage that is approved with less than a 20% down payment is considered a high-ratio mortgage and is subject to mortgage insurance.
• CMHC rules require homebuyers to have a minimum credit score of 680. 
• Homebuyers are also required to use their own money for a down payment. This is different from the past when buyers could use personal loans, lines of credit, or even credit cards for the down payment. 
• A homebuyer’s debt-to-income ratio must also meet certain criteria. For example, only 35% of your gross income can be spent on housing, and you can only borrow up to 42% of your gross income once your other loans are included. 

Ottawa’s Economy is Historically Stable 

Here in Ottawa, we are often at a disadvantage when it comes to the news cycle. Many news stories reporting on the Canadian housing market are skewed by data coming from Toronto. Yes, Toronto is a huge city with a robust economy. But it’s different than Ottawa.

Ottawa is often sheltered from significant swings in the economic outlook because our housing market and employment sector are heavily padded by the government. Reports from The City of Ottawa show that unemployment in the city has been lower than average since the turn of the century.

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Thinking about making a move to Ottawa? Here are a few blogs to help you start your neighbourhood search:

• Ottawa: More than Meets the Eye
• 5 Reasons to Relocate to Ottawa
• Everything You Need to Know About Moving to Ottawa

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Is it Possible to Time the Ottawa Real Estate Market? 

Although we can easily define the four phases of real estate and look at economic factors that have contributed to the past interest rates and economic development in our city. The truth is that no one knows exactly what’s coming and when. 

“Timing the market” in itself is a myth. You could sell your home when the market is high only to experience a shift and get priced out of the market when you want to buy. Or, you could buy a home when the market is low and win big when the market goes back up. 

The main point is that the real estate market is similar to the stock market. If you are looking at things from an investment perspective, there is always a little bit of risk involved. However, for those buying a family home they plan to live in and raise a family, there’s no time like the present to take the leap. 

Are you thinking about making a real estate move in Ottawa? We’re always happy to help with all your home buying and selling needs! Get started today by emailing us at mail@chellteam.com or simply call 613.829.7484 to get started!