| Selling

Okay, we’re seeing what you’re seeing: conflicting opinions about a Canadian recession. Some say we’re experiencing a technical recession, others are partial to the idea of a rolling recession, while others have cleverly coined a new phrase, “richsession.” Meanwhile, those with more faith are confident the Great White North is far too resilient to experience a recession at all. Who do you believe, and how or even should a recession impact your plans to sell your home? What about buying? 

The recession conundrum is a real poser, but it doesn’t have to be! We’re here to help make some sense of the situation, looking at the different types of recessions, explaining how recessions impact you as a buyer or seller, and providing strategies to help you come out ahead, recession or no recession.

What Type of Recession Are We In?

So, here’s the thing with recessions. There are different types that impact different people and industries. There are a few theories of what kind of recession we’re likely either already in or entering:

  • Technical recession: A technical recession is basically six consecutive months recording negative gross domestic product (GDP). GDP measures the value of all the products and goods produced in Canada. When we continue to see negative growth rates in GDP, it has a domino effect with declining wage growth and contracting money supply. So, if you want to put a label on what we’re going through now, this one fits the bill.   
  • Recession: If negative GDP goes beyond two quarters, it becomes a recession that includes increasing unemployment, decreasing investments, and reduced household spending. We’re not quite there yet, but we’re getting uncomfortably close. 
  • Rolling recession: Different industries are impacted at different periods in a rolling recession. We saw the hospitality and tourism industry hit during the pandemic, then the distribution/supply chain industry suffered, then real estate floundered thanks to rising interest rates, and now it seems the tech industry is the victim. So, we can also say we’re experiencing a rolling recession and have been since the end of 2020 — ish. 

What else should you know before selling your home? Read more in our related posts below:

Is it a Recession or “Richcession?

One of the things Canada is seeing right now is more of what people are referring to as a richcession, meaning it’s impacting the rich more than anyone else. Although most Canadians would disagree with this theory, this theory is based on the fact that lower-income earners have received what equates to a 12% wage increase through new minimum wage legislation. Combining this with a growing demand for “unskilled” labour, the table has turned, providing more power to these workers due to growing labour shortages. 

Second, although layoffs exist, they’re hitting higher-paying jobs and industries like tech. So, while inflation is hurting us all, the higher-paid earners are in a rare situation with increasing threats to their jobs and financial security. The good news for tech layoffs is that despite being let go from high-profile companies like Google, Meta, and, X nee Twitter, tech jobs are always in high demand. The bad news is that today’s tech jobs are with lower-earning, smaller companies where the higher salary expectations are less likely to be even remotely met. This puts a significant financial dent in households used to living the good life, negatively impacting the economy. So, there’s that…

What About Inflation?

Inflation is ridiculously out of control. Things are pretty dire when the federal government tries to pressure grocery stores and food producers to limit rising prices so families can afford to eat. Meanwhile, we’ve got the Bank of Canada increasing interest rates to unmanageable levels, with economists raising concerns that this is pushing us into recession. They’re not wrong. And this is where we segway into real estate because those high interest rates impact your decisions to buy or sell. Is deciding to buy or sell during a recession, or even the threat of recession wise? Read on. 

How Does Recession Impact Home Buyers? 

A recession is supposed to lead to lower interest rates. Well, we’ve seen interest rates frozen, but they’ve yet to drop. So, should we enter a recession, chances are you’ll see interest rates drop, which makes homeownership more affordable. But here’s the rub. Historically, Canada has not seen a decline in housing prices during a recession. In fact, prices tend to rise, with the last increase reaching 1.8% on average, from the start of the recession to the end. So, what does this mean? It means that in almost all cases, housing prices increase regardless of the economy. They might not increase as fast or as impressively, especially from a seller’s standpoint, but they do increase. 

Although scary recession scenarios have impacted housing prices, like the one we saw in the 1990s, economists feel this scenario is unlikely to repeat itself. They look at increased demand for housing, low inventory, and expectations of record immigration numbers that will impact population growth as the critical factors pointing to prices rising, not falling.    

So, this brings us to the age-old question: can you time the market to come out ahead? Timing the market means predicting when housing prices will drop so you can get a better deal. But this kind of pie-in-the-sky strategy doesn’t tend to pan out in the end because, well, rising prices. 

Here’s what buyers need to focus on during a recession:

Affordability for you

When it comes to buying a home, we adhere to one rule and one rule only from a financial point of view: If you can afford to make your payments without financial stress, you can afford to buy a home. Period. 

Waiting costs for you

The longer you wait, the higher the prices and the less affordable homes will become. However, the reality is that interest rates really call the shots regarding affordability. Most people won’t be able to qualify for a mortgage with current interest rates. 

Improve finances

There are a few things you can do to make homeownership more approachable:

  • Save more for a higher down payment to help offset interest rates
  • Look for a lower-priced home such as a condo, a home outside the GTA, or a foreclosure (foreclosures are very competitive, so you might still pay more than you expect)
  • Clean up your debt to improve your debt-to-credit ratio to qualify for the lowest interest rates
  • Improve your income

Buying is not necessarily out of reach as long as you have good credit, a solid down payment, and flexibility with your home type and location. Speak to your bank to see if you qualify for a mortgage. If you are pre-approved, speak to a real estate agent to get an accurate idea about home prices and what your mortgage limit will buy you. 

How Does Recession Impact Home Sellers?

For home sellers, it often boils down to the following:

Need

If you need to sell your home, you need to sell your home, and there’s not much you can do about that. Average home prices are still high right now, and depending on when you bought your home, equity could provide a nice nest egg or down payment towards your next home. 

Goals

If you’re thinking of selling, it depends on your home equity and why you’re thinking of selling.

For example, if you want to move from a condo to a larger home, you’ll be looking at an average asking price of about $720,000 when you sell. If you’re considering buying a townhouse as an upgrade, the average price is around $845,000. For this transaction, you’ll need at least $60,000 for your downpayment on the townhouse, which can increase based on the profit from your sale.

As a result, you won’t necessarily feel too much of a pinch budget-wise. However, if you set your sights higher and want to go for a single-family home, you’re looking at an average price of about $1.37 million. In this case, you’ll need to put down a full 20% or about $274,000, making this goal less realistic. 

Equity

You need to determine how much equity you have in your current home and consider how selling impacts your future home affordability. Selling when prices are high might sound like you’ll have more money to spend; however, on the buyer’s side, your money doesn’t get you quite as far. You’re also facing higher interest rates than you’re paying now, impacting those new monthly mortgage payments and whether you will even qualify for a new mortgage. You can consider renting instead, but this is actually more difficult now than buying with housing shortages and soaring average rents in Toronto. 

Buyer Sentiment

We’ve also entered a more balanced market, meaning buyers and sellers negotiate on a more level playing field. Home prices haven’t increased much compared to last year, and in some areas, prices are even dipping when we look at month-over-month prices. You’re also facing lower offers as buyers try to make up the difference for paying higher interest rates. If you aren’t willing to adjust your price, your home will sit on the market longer, which is a red flag to buyers and their agents. That means you need a solid pricing and staging strategy to demand top dollar. 

Planning to buy a new home once yours sells? Here are some ideas for a successful house hunt:

Preparing Your Home for Sale in a Recession

That comes to the final part of our blog: preparing to put your home on the market. Even in a recession, proper prep can demand 5-10% more than a home that isn’t staged. Therefore, we can honestly say there isn’t much difference between preparing your home during a recession and a healthier economy. Your goal is to present your home in the best possible light to create emotional triggers that help demand top dollar. You need to de-clutter, clean, make minor repairs, and sometimes consider a complete overhaul unless you plan to sell your home “as is.”   

Working with a real estate team that understands the market ensures you set the right price to attract buyers and maximize profits. They will also determine whether your home needs basic decluttering and cleaning, staging, or physical upgrades to keep it competitive. Unless buyers are looking for a fixer-upper, they respond to what feels like move-in ready, turnkey homes they can envision themselves living in. 

Whether buying or selling, we advise finding a real estate team you trust to guide your decisions (at the risk of sounding a little self-serving). They will ensure the best results regardless of the economy and circumstances. 

Call The Christine Cowern Team at 416.291.7372 or email us at hello@christinecowern.com with any questions about Toronto real estate. We’d love to work with you!