Prospect of rate cuts could see consumer confidence surge
With interest rates expected to fall and housing activity projected to pick up in 2024, some borrowers appear to be gearing up for a busier market by ramping up their homebuying plans.
That doesn’t necessarily mean a surge in approved files just yet – but the opening months of the year have seen a noted uptick in the number of would-be buyers enquiring about their preapprovals, according to a leading Ottawa-based broker.
Chris Allard (pictured top), of Smart Debt Mortgages, told Canadian Mortgage Professional that some clients who had been preapproved last year for a lower-than-desired amount appeared to have earmarked the beginning of 2024 as the time to try again for a higher figure.
“They’d heard rumblings in the news that maybe rates were a little bit lower today compared to three to six months ago. They’re hoping that that increases their borrowing power and purchase power,” he said.
“I can’t say that I’ve seen a noticeable difference in terms of the amount of approved files, but I’ve definitely seen an increase in the amount of new opportunities of people trying to get qualified again.”
That’s a good sign, Allard added, showing that borrowers have either become accustomed to the new reality of interest rates at their current level, or are committed to working with a broker to get into the market – “asking the right questions and doing the proper planning.”
For clients seeking preapproval, the answer may be “no” today, but not necessarily down the line, Allard said, especially with rates projected to dip later in the year.
Canada's January inflation dropped to 2.9%, surprising economists and potentially signaling upcoming rate cuts by the Bank of Canada. https://t.co/8mhtjBqG2V#mortgageindustry #inflation #interestrates #economicoutlook
— Canadian Mortgage Professional Magazine (@CMPmagazine) February 22, 2024
Rate cuts likely to be slow and steady when they arrive
Expectations of a rate cut by the Bank of Canada have contributed in large part to borrowers’ growing confidence, Allard said, although it’s also up to brokers to instil a note of realism into their plans.
“Sometimes we have to just readjust the mindset to say ‘Yes, rates are coming down, but it’s not like they’re going down 2% tomorrow,’” he said. “If they do come down, it’s a slow drop. It’s not like the rate and mortgage market has changed drastically from last year. We’re still in the same range.”
Still, a mild drop in rates could present some opportunities for buyers. “If rates inch down a little bit, maybe that’s kind of their best buying opportunity because if they go down a lot, I think there are a lot of buyers that will flood the market,” Allard said, “and suddenly they’re buying the same house they were going to buy last year, just at a higher price and lower rate. It might all add up to the same thing.”
A prominent feature of the current market for prospective buyers is a competitive bidding climate, with homes placed at lower price points to impel higher interest and multiple offers.
That trend has only been exacerbated by continuing low levels of inventory, with little end in sight to the supply shortage gripping the market.
“There’s not a ton of good homes for sale. And so as soon as there’s a home that does not need work that’s priced correctly, it will spark interest,” Allard said. “And there may be a few potential buyers trying to bid on the same home.
“So it’s not back in full force in Ottawa, but it definitely is here, [although] when we saw those types of bidding wars during the pandemic, they were maybe a bit more extreme than they are at the moment.”
How are first-time buyers faring in the current market?
The first-time buyer cohort was impacted significantly by that red-hot competition at the height of the pandemic, seeing its affordability squeezed as bids skyrocketed above list price.
Those buyer types were among the most prominent seeking preapproval at the beginning of this year, Allard said, although they may have to wait a little longer to qualify at a higher amount.
“The first-time homebuyers are still eager to buy,” he said. “For some, these small rate drops may have helped them. But for most of them, they don’t quite qualify for the price point that they want yet.
“So I think we still have a bit of a ways to go for them. But it’s very apparent to me that there’s a ton of potential buyers on the sidelines hoping to just qualify for a tad more, hoping to buy and respect a certain budget.”
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