Canada’s real estate landscape is on the brink of a significant shift, with early signs of recovery in sight, according to a recent analysis by a prominent Canadian real estate firm.
Phil Soper, CEO of Royal LePage, challenges the prevalent view that the housing market will only recover following a reduction in the Bank of Canada’s interest rates. The report he presented indicates that the market’s resurgence is linked more closely to consumer confidence in property values maintaining their worth, predicting this key change to happen in the early months of the year, preceding the anticipated easing of the Bank of Canada’s primary lending rate.
Despite a 1.7% decline in national home prices in the last quarter of 2023, which reflected the impact of rising borrowing costs, the market has not plummeted. Since its peak in early 2022, there has been a 7.9% reduction in home prices. However, these prices are still significantly higher than pre-pandemic levels – 18.7% above the final quarter of 2020 and 22% above 2019.
The overall economic indicators remain positive, with low unemployment among the working-age population, above-average savings rates, and historically low mortgage delinquencies. Soper believes that many potential homebuyers have the means to enter the market but are hesitating due to a lack of confidence.
Inventory levels have risen as sales dropped over the past year, yet they are still below historical norms. The final quarter saw a four-month supply of inventory in Canada, which is more than during the housing boom but less than the five to six months available during 2018 and the first half of 2019.
Soper anticipates that the fundamental shortage of housing supply in Canada will drive prices up as sidelined buyers re-enter the market in the coming months. The expectation is that the Bank of Canada has reached the end of its interest-rate hiking cycle, with rate cuts predicted later in the year. This expectation has already led some financial institutions to offer discounts on fixed-rate mortgages.
Regarding mortgage renewals, data from the Canada Mortgage and Housing Corporation reveals that about 45% of all mortgages, approximately 2.2 million households, are due for renewal within the next two years, mostly at higher rates.
Regionally, Calgary stands out with a quarterly home price increase at the end of 2023, with a 10.7% year-over-year rise to $663,500. This increase is attributed to a surge in interprovincial migration as Canadians search for more affordable living conditions. In contrast, Toronto, Canada’s largest market, saw a 2.1% decline in home prices in the fourth quarter compared to the previous quarter, but a 5.1% increase from the previous year.
In Toronto, increasing sales have led to a rise in
inventory, yet the supply does not meet the demand, according to Karen Yolevski, COO of Royal LePage Real Estate Services Ltd. She highlights the gap between the pace of new construction and the growing demand driven by new household formation, aging populations preferring to age in place, and a record influx of newcomers to the country.
Looking ahead, Royal LePage forecasts a 5.5% increase in national home prices in 2024, with both Calgary and Toronto expected to outperform this prediction with 8% and 6% increases, respectively.
Globally, housing markets have experienced a cooling effect due to central banks’ interest rate hikes. However, according to the International Monetary Fund, housing affordability remains a concern with home prices in most advanced economies still 10 to 25% higher than pre-pandemic levels, compounded by rising borrowing costs.
As the Canadian Real Estate Association prepares to release its December home sales figures, and the Bank of Canada gears up for its next interest rate decision, it’s a crucial time for the housing market. The changing dynamics present both challenges and opportunities, making it a pivotal moment for potential buyers and investors.
Stay informed with the latest in the housing market and seize the opportunities that arise in these fluctuating times. Whether you’re looking to invest or find your dream home, understanding the current trends is key to making informed decisions.
