Canada’s housing market could face a chill this fall as prospective buyers and sellers wait to see where the Bank of Canada’s interest rate path will head, according to new polling released Tuesday.
Re/Max Canada said in a report that based on current market conditions, home prices are expected to remain flat nationally from August until the end of the year, according to surveys of the brokerage’s own agents.
A lack of available inventory in most housing markets and interest rates sitting at their highest levels in more than 20 years are expected to combine for a “softer” market this fall, Re/Max’s report said.
Interest rate uncertainty making buyers and sellers hesitant
Uncertainty about where the Bank of Canada’s policy rate heads next — the central bank’s next decision is set for Wednesday — also continues to guide many decisions among buyers and sellers, Re/Max polling shows.
The brokerage tapped Leger to survey more than 1,500 Canadians in July after the Bank of Canada’s quarter-point rate hike that month.
One in three respondents who were interested in buying or selling a home in the next 12 months indicated they’d wait to see how interest rate changes play out before acting.
A little over half (51 per cent), meanwhile, said further rate increases this year would not change their financial situation or affect their plans to buy or sell.
Re/Max Canada president Chris Alexander says that a lack of clarity on where interest rates will go next and some surprises during the current rate tightening cycle have left Canadian buyers and sellers alike hesitant to act.
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“That’s mainly due to an unpredictable Bank of Canada and the key overnight lending rate rising in a very quick cadence, pausing and then rising again,” he tells Global News.
“If they hike again, we’ll see more of the same. Cautious buyers, cautious sellers.”
Alexander says there will be some homeowners already “on the brink” who can’t handle the carrying costs of a more expensive mortgage and will exit the market, but from his perspective, this is a “smaller segment of the market than people anticipated.”
Inventory has been strapped this year, the Re/Max report noted, with 74.1 per cent of markets reporting year-over-year declines in housing stock from January to July.
Alexander explains that homeowners looking to move up can be intimidated at the prospect of doing so with higher interest rates affecting the kinds of mortgages they can get. Prospective sellers holding back from listing their homes and new projects lagging amid high costs for homebuilders have compounded to throttle inventory levels in Canada’s housing market for much of 2023, he says.
“That’s really been the story this year,” Alexander says. “It’s been widespread across the country. Our inventory challenges are deep.”
Alexander says that he expects a slow fall could mean a “flurry of activity” to start 2024. While some Canadians might be able to put off their plans to buy and sell for a few more months while they wait for clarity on interest rates or for prices to ease a little, he says others will be facing “sideline exhaustion.”
“Housing is a basic need and you can only put your plans on hold for so long,” he says.
All told, one in 10 Canadians are planning to buy a home in the next 12 months, according to Re/Max.
More affordable markets could see prices rise
While Re/Max expects little movement nationally in home prices, some regions are forecast to see growth heading into 2024.
Prices are expected to rise from August through the end of the year in the Greater Toronto Area (up 2.5 per cent), Moncton, N.B. (up three per cent), Calgary (up 4.5 per cent) and Sudbury, Ont. (up five per cent).
Re/Max, meanwhile, calls for house prices to decline in Halifax (down one per cent), the Greater Vancouver Area (down two per cent), Kelowna, B.C. (down three per cent) and Ontario’s Durham Region (down five per cent) before the end of 2023.
The difference between these markets heading into the final months of the year primarily comes down to relative affordability and economic opportunity, Alexander says.
Alberta, for instance, has been diversifying its economy beyond the oil and gas sector and has seen many prospective buyers flock to the province for its more accessible home prices. The same is true for much of the prairies and Sudbury, Alexander notes.
Despite headwinds in the housing market, record levels of immigration are helping to put a bottom on any prices declines and spurring competition for the limited housing stock in the country, he says.
“In a lot of cases you’ll see upward pressure (on prices) because there’s just too much competition for too little product,” Alexander says.
Re/Max said a lack of affordable housing inventory is leading 55 per cent of Gen Z respondents (aged 18-28) and 49 per cent of millennials (aged 29-43) to change their housing plans in some way.
Alexander says that even after a prolonged housing correction tied to the Bank of Canada’s rapid interest rates hikes, “prices are still really high” in many parts of the country.
That, tied with today’s higher bar to qualify for a mortgage and a lack of entry-level homes in most markets, means the fall will be a hard time for young Canadians trying to break into the market this fall.
“If you’re a first-time home buyer, you’re going to likely find getting in the market very expensive,” he says.
The Leger polling came with a margin of error of +/- 2.5 per cent, Re/Max said.
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