Rebound will happen once consumer confidence in the market becomes stronger, says executive
Any rebound in the Canadian housing market will likely happen before any interest rate cuts from the central bank, according to Phil Soper, president and CEO of Royal LePage.
Soper pegged Q1 2024 as the earliest possible period for such a recovery to take place.
“I believe the narrative suggesting that the housing market will rebound only when the Bank of Canada lowers rates misses the mark,” Soper said. “The recovery will begin when consumers have confidence the home they buy today will not be worth less tomorrow. We see that tipping point occurring in the first quarter, before the highly anticipated easing of the Bank of Canada’s key lending rate.”
The latest edition of the Royal LePage House Price Survey found that that the aggregate cost of residential properties in Canada posted an annual increase of 4.3%, reaching $789,500 during the fourth quarter of 2023. However, on a quarter-over-quarter basis, the national aggregate home price experienced a marginal decline of 1.7%.
Soper said that this decline emphasized the ongoing impact of mounting borrowing expenses, as Canadians navigate the challenges posed by the elevated-rate environment.
“Canadian consumers are moving through a period of transition and as a result, so are the dynamics of our national housing market,” Soper noted. “Buyer sentiment can have as great an impact on market trends as inventory or interest rates. Early market recovery will be sparked by signs of home price stability, and we are very close to that now.”
December saw Canadian home sales increase on a month-over-month basis for the first time since last June as expectations of impending interest rate cuts began to strengthen.
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 15, 2024
Read more: https://t.co/GNIOgCZ6Cr#breakingnews #homesales #housingmarket #mortgageindustry
By asset class, the median price of a single-family detached home in Canada rose by 4.4% year over year to $816,100, while the median price of a condominium increased by 4% to $583,900. On a quarter-over-quarter basis, the median price of a single-family detached home saw a decrease of 2.1%, while the median price of a condominium modestly declined by 0.6%.
Given these trends, the central bank is likely to wrestle with a new set of critical challenges in the very near future.
“The Bank of Canada governing council will soon face the difficult task of trying to balance the lowering of interest rates without simultaneously stimulating spending, which would cause inflation to rise again,” said Soper.
“In Canada, we purchase homes with short-term mortgages of five years or less, in contrast to the situation in the US where much longer 30-year terms are the norm. In a typical year, 25% of our mortgages turn over.
“Consequently, during the period from 2023 to 2025, most homeowners in Canada will have transitioned to higher mid-single-digit borrowing. We will be required to adapt quickly, positioning our industry on a path to recovery more quickly than in the US where the prospect of losing a below-market rate will act as a deterrent to moving.”
