London’s real estate market fell off a cliff in July, the number of homes sold down by nearly half compared to the same month a year ago before interest rates shot up and took the shine off a once red-hot market.
The average selling price only fell by about $19,000 last month to $667,323, after eroding by $76,000 the previous month.
Even still, July was the fifth straight month of declining average prices for homes in the London region that includes Strathroy, St. Thomas and portions of Elgin and Middlesex counties, with realtors selling only 514 homes. That’s 479 fewer homes sold than in July 2021, a drop of 48 per cent.
“The swings that we’ve seen, not only in average sale prices, but with inventory levels, as well as interest rate increases, have thrown the whole market for a loop,” said Randy Pawlowski, president of the London and St. Thomas Association of Realtors (LSTAR).
“I can’t say that we’ve ever seen such extremes,” he said Thursday.
Pawlowski attributed the market’s cool-down to the Bank of Canada’s decision to increase interest rates this year as the central bank tries to fight inflation that is running at decades-high levels.
“It feels like the taps kind of shut off,” he said. “I think a lot of folks are just pausing on the buying side of things.”
Earlier this year, sellers in the London market basked in high demand for their homes, many fielding competing offers and seeing their places go for above-asking prices in a matter of days.
It’s a different reality now, with the market rebalancing in a higher interest rate climate.
In some cases, Pawlowski said, sellers have had to lower their asking prices, a move that was unheard of in the last couple of years.
“There’s definitely some buyer’s remorse out there, too,” Pawlowski said.
“For folks who bought a property as a place to live, with the intention of being there for some time, (the current trend) it’s not such a difficult pill to swallow. But if you’re coming at it more from an investment perspective and looking at the short term. . . it’s definitely having an impact.”
After reaching an all time high of $825,221 in February, average prices in the region have since gone down by a whopping $157,000.
On the flip side, the drop in prices means would-be buyers, many of whom were priced out of the market just months ago, now have a fighting chance to find a home, said Austin Titus, a broker with Century 21.
For starters, cheaper homes translate into lower minimum payments for would-be buyers.
“There’s no more fear of missing out in that sense,” Titus said. People “aren’t constantly having to increase their down payment just to get into a property.”
First-time home buyers also have more options, Titus said.
“Now, for $500,000, people are able to enter the detached market, which, if you had asked me two, even three months ago, just wouldn’t have been possible,” he said.
First-time home buyers, however, still have to contend with higher mortgage prices following the recent interest rate increases.
The minimum down payment for a home selling at the average July price is $41,700.
With a fixed rate of about five percent, the monthly mortgage payment works out to be about $3,800. The monthly payment drops to about $3,250 with a variable rate of about 3.5 per cent.
Pawlowski said it’s hard to predict whether home prices will keep dropping in the coming months, but he said the market could still rebound in the fall.
“I think we’re very close to that balanced market, and I think that’s a good thing,” he said.
“The hope is that we kind of hold steady without losing much more ground and increase again from here.”