Covid and the Ottawa Residential Market
I have observed the Ottawa residential real estate market for over 40 years. At the start of the pandemic, no one knew how the real estate market would react to the lockdowns, job insecurity and marketing challenges that would affect the local, Canadian and world markets. I believe that the effects of the pandemic on the real estate market will end in the early to mid part of 2023. Before forecasting how the real estate market will perform in 2023 let’s take a look back at how the market reacted during the past three years.
The average price of a single-family house in Ottawa at the start of 2020 was $516,229 and $338,077 for a condominium. Typical of most spring markets, the average house price increased to $563,694 in February and down slightly to $559,739 in March. The average price for a condominium was $349,813 in February increasing to $369,311 in March. On March 11, 2020, the World Health Organization declared a pandemic. While it did not affect the March results, the average sale price for a house dropped to $521,694 in April, and the average sale price for a condominium property dropped to $327,813. Sales volume dropped from 1,170 sales in March for a single-family house to 700 in April. There were 355 sales of condominium properties in March, decreasing to 213 sales in April.
May 2020 showed a rebound in both prices and volume, with the average sale price of a single-family house increasing to $548,140 with 1,170 monthly sales. The condominium market saw 279 sales, up from 213 in April, with an average sale price of $343,589 up from $327,813 in April. Sales volume for the remainder of the year was strong, with average sale prices ranging from $575,623 to $622,557 for single-family houses and $355,982 to $383,640 for condominium properties. The average sale price for the year 2020 was $574,611 for single-family houses and $357,603 for condominium properties. There was a total of 14,516 annual sales of single-family houses and 4,534 for condominium properties.
Sales volume in January of 2021 was slightly higher at 674 single-family houses and 290 condominium properties compared to 558 single-family houses and 222 condominium properties in 2020. However, sale prices for single-family houses increased by 31.2% on a year-over-year basis to $677,197. Condominium prices increased 12.8% to $380,000 from the previous year. Average sale prices during 2021 for single-family houses ranged from $677,197 in January to a high of $758,802 in March. The average sale price for the year was $714,139. There was a total of 15,373 sales of single-family dwellings up from 14,516 the previous year. Average sale prices for condominiums ranged from $380,336 in January to a high of $497,671 in February. The average sale price for the year was $424,189, and a total of 4,996 condominium sales in 2021, an increase of 462 units.
The market in 2022 was strong for the first six months, with sale prices ranging from $771,739 in January to a high of $837,517 in February for single-family houses. Sale prices for condominium properties ranged from $447,943 to $479,405 over the same period of time. Sales volumes were also strong during the first six months ranging from 661 monthly sales in January to 1,493 in March. The average monthly sales volume over the year’s first six months was 1,198. Monthly sales volume for condominiums ranged from 275 in January to 518 in March. The average monthly sales volume for the year’s first six months was 404.
The increase in mortgage rates had its desired effect of cooling off real estate markets.. In July, the average sale price of a single-family house dropped to $716,354, with a total sales of 840 units. The average sale price of a condominium property dropped to $425,694, with a total of 270 sales. Over the last six months of 2022, the average monthly sales volume was 731 for single-family houses and 229 for condominium properties. Average monthly sale prices ranged from a high of $716,354 in July to a low of $655,839 in December for single-family houses. Condominium properties ranged from a high of $450,987 in September to a low of $415,533. Average sale prices over this period of time were $690,745 for single-family houses and $423,474 for condominium properties. Average yearly sale prices were $750,993 for single-family houses and $447,873 for condominium properties. The year 2022 saw total sales of 11,578 for single-family houses and 3,794 for condominium properties.
Sale prices during 2020 and 2021 were strong, with the biggest increase in the spring of 2021. The price increases during this period resulted from strong demand, low inventory, and low-interest rates. These factors were also present during the first six months of 2022. Once the interest rates increased, both sales volume and prices fell.
2023 Forcast
The underlying economic principles in the Ottawa market appear to be good. Low unemployment, increasing wages and good demand for both housing and rental accommodation. In 2021 and 2022, we saw large housing prices increase caused by high demand and a combination of low inventories and interest rates. As seen with the decrease in pricing in the latter part of 2022, housing prices are returning to more traditional levels. Inventory levels in the resale market have also been increasing. The Ottawa Real Estate Board indicated that inventory levels are up from less than one month in December 2021 to 3.7 months for residential-class properties to 3.9 for condominium-class properties in December of 2022. This will or should lead to a more balanced market in 2023, which will help keep prices at more traditional levels. While interest rates are currently at higher levels, the drop in housing prices should bring purchasers back into the market. As inflation retreats, mortgage rates should follow. As inflation and mortgage rates return to more traditional levels, the stress test for applicants should be reduced or eliminated. This will also bring more purchasers back into the market.
Residential and Condominium Price Trends
As can be seen from the above chart, both the average sale price for residential and condominium markets somewhat mirror each other. Sales in the spring of 2020 and during the year were consistent. We did see peaks in both the spring of 2021 and 2022. Sale prices in the fall of 2022 dropped off from the peak sale prices in 2021 and 2022 but are still above levels in 2020. With the anticipated spring market for 2023, there is expected to be an increase in pricing that should pull the average sale price to the low to mid $700,000, which would be more consistent with Ottawa’s traditional market increases over this period of time.
Residential and Condominium Sales Volumes
The sales volume for the condominium market is almost level while the sales volume for single family housing appears to be dropping off. Both of these trend lines were affected by the high sales volume in both 2021 and 2022 and the drop in sales in the later part of 2022. It is expected that sales volumes will return to traditional levels with annual sales of approximately 12,000 residential units and 4,000 for condominium units.
While the headlines over the next number of months will highlight large drops in year over year sale prices from the peak prices in the spring of 2022 the underlying market is still strong and should return to traditional levels by the middle to the later part of this year.
Leonard Carty AACI, P. App is a professional appraiser and President of Carty Gwilym Real Estate Appraisers Limited. The company has operated since 1989 and has provided appraisal services in the Ottawa and Eastern Ontario Markets. Services provided include appraisals for mortgages, probate, capital gains, divorce, replacement cost for insurance purposes and litigation.
All data has been taken from publications released by the Ottawa Real Estate Board
