Fresh home sales data has finally answered the question for real estate watchers: The Bank of Canada’s initial interest rate cut in June did not open the floodgates to buyers, many of whom remain sidelined through an unseasonably slow spring housing market.
Sales figures from local real estate boards released in the past week show last month’s home sales did not see much of an uptick after the Bank of Canada’s quarter-point cut on June 5, the first decrease in four years and a substantial shift in monetary policy after the central bank’s fastest tightening cycle on record.
“Despite the Bank of Canada rate cut at the beginning of last month, many buyers kept their home purchase decisions on hold,” the Toronto Regional Real Estate Board (TRREB) said in its monthly report that showed a year-over-year drop in June home sales.
The Real Estate Board of Greater Vancouver echoed findings of buyer hesitancy persisting in June, with home sales in the metropolitan market out west also holding below seasonal levels.
Phil Soper, CEO of Royal LePage, tells Global News that he thought there would be more of a response on the ground after the long-awaited cut in borrowing costs.
“I honestly expected more of a reaction from the marketplace,” he says.
Over at Re/Max Canada, president Christopher Alexander tells Global News that the rate cut “didn’t really substantially move the needle,” save for a slight uptick in sales in some markets in the immediate aftermath of the cut.
He says that while March kicked the spring market off to a “pretty strong” start, April and May lagged as prospective buyers were waiting for the outcome of that June rate decision before making any moves.
And though Alberta has been an “outlier” for years now as relative affordability draws buyers from other provinces, buyers in Ontario and British Columbia are boxed out by still-high borrowing costs and prices, Alexander says.
Until there’s meaningful “momentum” in those markets, housing activity in the rest of the country is likely to remain muted, he argues.
“You really need those two to get on a bit of a roll to have a greater impact across the country,” Alexander says.
Sell first, buy second
The reaction to lower borrowing costs appears to be showing up first among existing owners who have started to list their properties, Soper says, as evidenced by rising inventories in markets across Canada.
Alexander says that homeowners are adopting a sell-first-buy-second mindset in today’s market so they know exactly what kind of prices they’re working with as they set out to buy their next home. That’s a marked reversal from the frenzy of three years ago, he notes, when owners could be assured their home would sell at a solid price and landing a property amid bidding wars was the tricky part.
Once the first cohort of sellers gets their homes sold, they’ll turn into the buyers hoping to take advantage of declining mortgage rates through the year, he expects.
“I’m actually encouraged by the amount of new inventory we’re seeing because I think that will start to stimulate more buying,” Alexander says.
For those who haven’t taken their first step on the property ladder, Soper says that a 25-basis-point cut wasn’t enough to “change the affordability game” for first-time buyers who remain shut out of the ownership market.
While many buyers in the market today have been able to secure fixed-rate mortgages below the five-percent bar, Soper expects rates on offer will have to start floating in the range of 4.0-4.5 per cent before buyers are confident enough to seriously test the market.
“It probably will take an additional couple of rate cuts of that magnitude to start to make a real difference,” he says.
TRREB President Jennifer Pearce said polling conducted for the local board revealed cumulative easing of 100 basis points would be needed to boost home sales “by any significant amount.”
Alexander says he expects there will need to be at least two more rate cuts before buyers come back in a meaningful way.
If the central bank delivers a rate cut later this month, he expects the fall housing season will kick off with a “really robust” September.
“So many cities and people are waiting for more favourable buying conditions, and it does, unfortunately, come down to interest rates,” Alexander says.
“We’re still at the mercy of the Bank of Canada at the end of the day.”
Bank of Canada governor Tiff Macklem has said that the central bank is likely to ease its benchmark interest rate further if inflation continues to ease according to its forecasts.
Where do home prices go next?
Royal LePage also released its latest House Price Survey on Thursday where it noted the aggregate price of a home increased 1.5 per cent quarter-over-quarter to $824,000 in the second quarter of the year. The median prices for both detached and condo-style properties were up on a quarterly and annual basis in Q2, the report noted, each rising by low single-digit percentages.
Soper says that while a slow housing market usually sees sellers compromise on price to get their home sold, Canada’s structural supply shortages have kept values elevated even in a cooler period.
Meanwhile, the Prairies and Atlantic Canada — the beneficiaries of interprovincial migration — are seeing price increases amid hot competition for homes in cities like Edmonton and Calgary, Soper says.
Royal LePage is maintaining its forecast for a nine per cent annual increase in home price values in the fourth quarter of 2024, but Soper notes that prices were heading down nationally in the final quarter of 2023, which can make the modest improvements in home prices this year seem outsized in comparison.
From the midpoint of 2024 through to the end of the year, he expects price growth will be more in the low-to-mid single digits.
Royal LePage doesn’t have a rate cut pencilled in at the Bank of Canada’s next decision on July 24, which he says means that mortgage rates won’t fall much further from today’s levels heading into autumn.
But “demand is building,” Soper says, as Canada’s population grows and savings rates climb, particularly among a millennial generation that’s eager to make moves in the housing market.