Bank of Canada rate cut has spurred optimism
The last month of housing market activity before the Bank of Canada’s interest rate cut at the beginning of June saw sales remain muted, with homebuying sluggish in May.
Recently released Canadian Real Estate Association (CREA) figures showed national home sales posted a marginal 0.6% climb in May over the previous month, with actual activity down 5.9% year over year and the MLS Home Price Index (HPI) dipping by 2.4%.
Still, the central bank’s 25-basis-point cut on June 5 has revived optimism on a housing market uptick in the second half of the year – and Canadians’ homeownership aspirations have remained largely undimmed.
Even amid a prolonged high-rate environment and turbulent housing and mortgage markets in recent years, 62% of respondents to a recent Bank of Montreal (BMO) survey said owning a home was “one of their biggest aspirations in life”, even if a significant percentage also viewed homeownership as currently unattainable.
For Samantha Villiard (pictured top), regional vice president at RE/MAX Canada, the continuing determination of Canadians to forge ahead with homebuying plans is part of the reason for “cautious optimism” on the housing market outlook for the remainder of the year and looking ahead.
She told Canadian Mortgage Professional that encouraging recent trends in the housing market included a jump in condominium purchase activity by Toronto first-time homebuyers.
“Regardless of economic pressures, the rising cost of living, those interest rates, and lack of inventory, Canadians remain positive that homeownership is a solid investment,” she said.
“We’ve seen some areas like the condominium market in Toronto that saw an uptick a few months ago. So that was really positive to see that first-time homebuyers were cautiously entering the market – and those buyers have been sitting on the sidelines for a while waiting for the Bank of Canada announcement.”
Buying a home in Canada became more challenging in May as rising property values offset flat mortgage rates, according to the latest housing affordability study by Ratehub.https://t.co/asd5ADvUy5
— Canadian Mortgage Professional Magazine (@CMPmagazine) June 20, 2024
How will homebuyers react to the Bank of Canada rate cut?
That move to lower rates, which many observers believe marks the first in a potential series of rate cuts before the end of this year, could spur more buyers to step off the sidelines and enter the market, according to Villiard.
“With the reduction that was made, I definitely anticipate the pent-up demand has got to go somewhere and they’re going to be ready to go now,” she said. “It’s been itching to get started and I feel like that was a point in the right direction.”
Other prospective buyers, meanwhile, may decide that one rate cut isn’t enough for them to step up their home purchasing plans – and with home prices in many markets also remaining steady or slipping slightly, some sellers are holding fire on listing their properties.
Still, lower rates and a more active market could see sellers decide to list their properties as prices begin to climb again, potentially leading to a market that’s well balanced between buyers and sellers.
“It’s notable that with the interest rates being reduced even a small amount, when that happens, the prices go up,” Villiard said. “So these markets throughout the country that are struggling with inventory, the sellers are going to reap the benefits of having prices go up.
“I hope that points us in the direction of moving towards a more balanced market and providing that opportunity for sellers to jump into the market as well, who have been sitting on the sidelines, really waiting for [the Bank of Canada] announcement.”
Confidence returning to housing and mortgage markets
While the coming weeks may be too early for a flood of sellers to re-enter the market because good weather, holidays and other plans can get in the way, Villiard said she’s hopeful things pick up on that front by the end of the summer.
A range of factors could temper the Bank of Canada’s approach to further interest rate cuts before the end of the year, not least the outlook of the US Federal Reserve and its own stance on lowering rates.
Nonetheless, Governor Tiff Macklem struck a positive tone in his remarks following the June rate cut – and Villiard is optimistic on the prospect of a stronger housing market in the second half of the year as the rate-hiking days fade into memory.
“I’m really excited to see now with this announcement, people getting back into feeling more confident of entering the market,” she said, “whether that’s the buyer or the seller.”
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