How busy will Canada's spring housing market be?

Canada’s housing market took off like a rocket at the onset of the COVID-19 pandemic, with lower interest rates and a purchasing fervour helping drive a relentless level of activity that’s barely slowed since this time two years ago.

But are the first signs emerging to indicate that the red-hot pace of market activity is set to cool? Those rock-bottom interest rates certainly won’t be around for much longer: the Bank of Canada has already hiked its benchmark rate by a quarter point this year and is strongly indicating that a further sizeable increase could be in the cards for its next statement (scheduled for April 13).

Deputy governor Sharon Kozicki said last week that the central bank was prepared to act “forcefully” on rates to tackle an inflation problem that’s currently spiralling out of control, a comment that many took to signal that a possible 50-basis-point hike could be announced next month.

Meanwhile, a new report by Oxford Economics forecasts that the dizzying climb in Canadian home prices could also be nearing an end. A correction will begin this autumn, according to the company’s director of Canada Economics Tony Stillo, in a development that could ultimately see prices plummet 24% by the middle of 2024.

That’s partly because an ever-rising number of Canadians are unable to afford house prices at their current growth rate, Stillo said, with the middle of the year likely to herald real estate price tags that are 38% higher than what the average Canadian household could pay.

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Have mortgage professionals noticed any cooldown in recent weeks? Sadiq Boodoo (pictured top), principal broker at Approved Financial Services in Ontario, told Canadian Mortgage Professional that while the Bank’s movement on interest rates had led some clients to think again about the choice between fixed and variable, he hadn’t noticed any significant impact on market activity of late.

“Some clients are kind of re-evaluating if variable is still really where they want to go because of the potential for more [rate] increases,” he said. “There’s a little bit of hesitancy there. But for the most part, it hasn’t deterred anyone from entering or trying to get into the market.”

The situation facing Canadian homebuyers remains complicated by historic inventory challenges in the market, Boodoo said, meaning frenzied bidding wars and multiple offers on properties – which both became the norm last year – have continued.

“Because of the low supply, it’s harder; people want to buy but can’t find, and there are still 12-14-plus offers on a property. That hasn’t changed,” he said.

“What we’re seeing is that lots of people want to buy [but] just can’t find a property and because the ones who own properties can’t find something, they’re not putting theirs for sale. So the cycle just continues.”

That also means that more clients are now choosing to consolidate or take out equity to renovate their current homes, Boodoo said – although there may be some positive news on the supply front, according to RBC Economics.

The bank indicated in March that local real estate boards had revealed significant monthly increases in new listings in February, a trend that was particularly noticeable in Calgary and Edmonton.

“One month doesn’t make a trend but if February is any indication, more sellers may be (finally) making their way into Canada’s housing market,” said the report’s author, Robert Hogue.

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If a “critical mass” of current homeowners decide this spring is the time to cash in on their property, Hogue said, that would help ease some of the inventory shortages gumming up Canada’s housing market, serving as a boost to activity and perhaps reducing some of the steep recent home price appreciation.

That said, “if instead the number of sellers doesn’t pick up materially, recent price trends are likely to persist (until interest rates increase sufficiently to curb demand),” Hogue noted. “We expect the next few months to tell much about the future direction of the market and prices.”

Boodoo said that Canada was still likely to see another busy spring market this year, even despite the prospect of further Bank of Canada rate increases in the coming months.

“I think for the spring market into the summer, we’re going to see the same kind of behaviour as we did last year,” he said. “I think it’s going to be a solid, growing market. The biggest factor that we’re going to still face is the low supply, but I don’t think we’re going to see any slowdown at all despite looming rate increases and things like that.”