Canadian housing market will likely stay in neutral until spring 2025
The Canadian Real Estate Association (CREA) has adjusted its housing market forecast for 2024, reflecting a slower-than-expected return of buyers. Initially anticipating that the first interest rate cuts this summer would spark more activity, CREA now predicts that home sales will remain subdued until the spring of 2025.
CREA’s summer forecast predicted a gradual return of buyers as interest rates were expected to start dropping this year. However, the market has remained stagnant, with many buyers holding off, hoping for better rates in the near future.
The association now expects 468,900 homes to sell through Canadian MLS Systems in 2024 – a modest 5.2% increase from 2023 levels, but below earlier expectations.
The average home price is forecast to edge up just 0.9% next year, reaching $683,200, before rising more significantly by 4.4% in 2025 to $713,375. CREA anticipates home sales will gain stronger momentum in 2025, with a projected 6.6% increase as interest rates continue to decline and more buyers re-enter the market.
Buyers who might have been willing to settle for higher rates on fixed mortgages are now holding off, expecting lower rates in the near future.
“It’s possible the type of buyer who was, until recently, entering the market with a three-year fixed rate mortgage has decided to hold off for better rates that now seem just around the corner,” the association noted in its report.
This cautious approach has resulted in what CREA described as a "holding pattern" for the housing market, with little movement expected until the spring of 2025 when more significant rate cuts are anticipated. By then, CREA expects the market to gain stronger momentum, with a sharper rebound in both sales and prices.
"Looking at September’s ho-hum housing figures, it feels like we’re in that moment just before a starter pistol goes off,” said Clay Jarvis, NerdWallet Canada spokesperson and real estate financial expert. “The market’s loaded with new listings, but buyers still aren’t ready to run headlong into gigantic mortgages.”
Jarvis also suggested that a 50-basis-point rate cut from the Bank of Canada could quickly change buyer behaviour.
"Variable mortgage rates would become much easier to qualify for, and the affordability boost might trigger at least some home buyer FOMO,” he said.
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However, others might wait for additional measures from the government, which could help them enter the market more comfortably.
"Buyers who are paying down large debts or rebuilding their down payment savings are going to need more than lower rates to get over the finish line. If they’re waiting for the country’s new insured mortgage limit to kick in in December, the housing market might be in a holding pattern for the rest of the year."
CREA’s next forecast will be released in January 2025, but for now, the market appears to be in pause mode, with both buyers and sellers waiting for more favourable conditions.
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