How Sellers Win When Housing Inventory is Low

A recent report from the Canadian Real Estate Association (CREA) revealed that two-thirds of the nation’s housing markets are slanted in favour of sellers. With supply failing to keep up with demand, this could be the top trend for the foreseeable future.

For years, housing development has been tepid, resulting in supply falling short of demand levels. This imbalance might be more intense in more-populous markets such as Toronto and Vancouver, but this trend is prevalent throughout Canada, leading to accelerating home prices.

Under current conditions, sellers who bought even five years ago would benefit from this tight housing market. Here’s how sellers win when housing inventory is low.

How Sellers Win When Housing Inventory Is Low

A couple of years ago, the Prince Edward Island or Alberta real estate markets would have been considered a buyer’s market. Today, prices are climbing in the Maritimes and Prairies, which has become a boon for owners listing their properties on the market.

Let’s explore why sellers benefit when housing inventory is low.

#1 Higher Prices in a Tight Market

In February 2020, the average residential price in Canada was below $500,000. Fast forward two years, and that national average reached $796,000 in March of 2022, per CREA. Even when the high-priced markets of Toronto and Vancouver are removed from the equation, prices are still sitting at $633,000.

With home-buying trends turned upside down in the wake of the coronavirus pandemic, supplies were exhausted. This might have been expected in major urban centres, but it came as a shock to the real estate sector in small towns and rural communities, which already had limited inventory.

Of course, this was beneficial to households who were putting up the For Sale signs on their front lawns.

#2 Huge ROI on Your Property

If you bought a single-family home, townhouse or condominium suite at the bottom of the housing downturn in January 2009, you have most likely already seen a significant return on your investment.

At the time, the average residential price was under $300,000, so an increase of more than $520,000 is impressive. Indeed, some properties and markets are defying averages, so perhaps your ROI is even more significant when prospective homeowners are scrambling for the shrinking number of properties available for sale.

#3 Better Terms and Conditions

With intense bidding wars, desperation has become a common feeling among many homebuyers. Many families are going above and beyond, in an effort to ensure the seller accepts their bid. A growing number of families are trying to increase their odds by abandoning certain aspects of purchasing a home, such as home inspections, which can be a risky move.

However, in a strong seller’s market, the seller controls the situation and buyers are working and abiding by the seller’s terms and conditions.

#4 Many Prospective Homeowners Bidding for Your Property

At the height of the pandemic-era housing frenzy in certain markets across the country, dozens of homebuyers would jump at a single listing – if not to make an offer, then at least to view it as a prospect. Even if a third of those individuals were serious buyers, there would be a bidding war. Despite the bad publicity that this practice has gotten in the mainstream press, this is beneficial for sellers and their bank accounts.

Indeed, the more people interested in acquiring your three-bedroom house in a prime part of town, the higher the price will climb.

#5 Steady Demand Outpaces Supply

In Ontario, the provincial real estate market would need 650,000 units to keep up with national levels and 1.2 million to mirror international counterparts, according to a research note from Scotiabank. The same conditions are prevalent in other provinces, too, the bank says.

“For Alberta, the gap is 138,000 units and around 23,000 units would be required in Manitoba. It should be stressed that this isn’t a bottom-up assessment of housing needs.”

So, obviously, the housing shortage will not be resolved overnight, meaning demand levels will remain strong for the next couple of years. It will take several years before supply catches up, which is good news for sellers who are taking their time with their real estate agents before selling their properties on the open market.

“As we look to the future, we remain of the view that the chronic shortage of housing relative to the population’s needs will put upward pressure on prices and reduce affordability,” Scotiabank analysts wrote.

“The available completion and population data for 2021, for instance, suggest some improvement in dwellings to population ratios across the country. There is, nevertheless, a big hole to fill.”

Indeed, with 1.2 million newcomers arriving in Canada over three years, and more young people trying to get their feet in the door of the real estate market, demand is not subsiding.

Originally published on the RE/MAX Canada Blog.