Market could see boost in buyer confidence based on BoC's next move, says BCREA
The housing market in British Columbia could see a resurgence later this year depending on the Bank of Canada’s next move.
This is according to the British Columbia Real Estate Association (BCREA), which reported that home sales across the province have mirrored the sluggish patterns of early 2023.
BC home sales stayed at a 65,000-unit annual rate through the initial quarter of 2024, even as Canadian five-year fixed mortgage rates dropped from over 6% at the end of 2023 to 5.09% in the initial months of 2024.
But BCREA said the provincial housing market may soon experience a boost in buyer confidence should the Bank of Canada follow through with its anticipated rate cuts.
“The biggest question for the provincial housing market is when the Bank of Canada will lower its policy rate and by how much,” BCREA said, noting that the answer will be contingent upon how the economy performs in the coming months.
When will the central bank begin lowering its policy rate?
Canada’s economy has shown resilience by narrowly avoiding a technical recession in 2023. But BCREA said other economic indicators have painted a less rosy picture, with private domestic demand in the red for two quarters and real gross domestic income only recently returning to positive territory.
The labour market has also reflected this slowdown, with the national unemployment rate rising to 6.1% by the end of the first quarter, marking the highest level in three years.
Similarly, BC’s economic performance has been underwhelming, with an anticipated growth of only 1.5% this year. And while there has been strong growth in the BC labour market, consumer spending remained restrained in January as retail sales fell 1.5% compared to the previous year.
Still, significant progress has been made in curbing inflation, according to BCREA. Headline CPI inflation dropped from a peak of 8.1% in the summer of 2022 to under 3% currently. Core inflation measures have also decreased and are now well below 2% on a three-month annualized basis.
Based on these trends, BCREA said it is expecting the Bank of Canada to initiate policy rate cuts as early as June 2024, potentially reaching up to 100 basis points by the year’s end.
“Weak economic growth, a slowing labour market, and a downward trend in inflation should be signalling to the Bank of Canada that it is time to start lowering its policy rate,” the association said in its forecast.
With the anticipated policy rate adjustments, BC home sales should start to recover in the second half of 2024, according to BCREA.
The association said sales are projected to increase by 6.9% over the previous year and continue to gain momentum into 2025. Average home price could also increase by 1.7% this year, followed by a 3.6% rise in 2025, depending on the market’s ability to match supply with the growing demand.
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