Could sales rebound in the second half of the year?
Canada’s housing market outlook for 2024 will be a “tale of two halves” – but resale activity is still set to rebound in the second part of the year, according to a new forecast by Royal Bank of Canada (RBC).
The bank’s assistant chief economist Robert Hogue said in a special housing report that the first six months of the year were likely to see a muted market with soft prices continuing with no sign of an imminent Bank of Canada rate cut in the cards.
Still, the first sign that the central bank is prepared to start lowering rates should “get the wheels turning faster over the second half or perhaps sooner,” according to Hogue.
While there’s little indication current pent-up demand will ease soon, any recovery is likely to be tempered by poor affordability conditions, the report said, with buyers set to see significant opportunity “only after interest rates have dropped materially,” by the end of 2024 or beginning of next year.
RBC’s forecast expects home resales to jump by 9.2% compared with 2023, hitting 484,400 units. While that would still be short of the last year before the pandemic (490,900 units in 2019), Hogue said lower interest rates and high demand would propel 2025 activity forward by 16%, to 562,100 units.
Indeed, that rebound already looks to be gathering pace in Alberta and Saskatchewan, markets which have not faced the crises caused by plunging affordability in Ontario and British Columbia. In Alberta, RBC expects “above-average” resales growth of 13.5% in 2024, with Saskatchewan predicted to see activity heat up by 9.4%.
Sal Guatieri from BMO notes the recent language in the Bank's rate announcement, indicating the end of the rate-hiking cycle and a potential reduction unless unexpected economic shifts occur.https://t.co/ExhJVvM1jU#mortgageindustry #industrytrends #ratehike #interestrates
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 29, 2024
What’s the outlook for Canadian home prices in 2024?
Prince Edward Island (15.8%), Nova Scotia (15.5%), and Quebec (10.2%) are also forecast to see resale activity accelerate this year, although RBC believes eyewatering property values in Ontario and BC will weigh down on their recoveries. BC is projected to see a mild 6.4% uptick in resale activity, with Ontario expected to post 7.7% growth.
On the home price front, the national RPS Home Price Index (HPI) is expected to tick down by 1.0% in 2024 before jumping by 3.1% next year. Alberta, New Brunswick, Nova Scotia, and Saskatchewan should all see their HPI increase, RBC said, although Ontario, Manitoba, Newfoundland and Labrador, BC, and Quebec are all predicted to see mild declines.
Mortgage renewal wave to cause pain – but no crisis impending, says RBC
The much-discussed wave of mortgages set to hit renewal this year and next will “hit many Canadians hard,” Hogue said, potentially forcing some owners to sell their property.
Still, there seems little prospect of a meltdown. “We see the risk of a wave of distressed sellers as contained,” he wrote. “Most mortgage holders have been stringently stress-tested against a spike in rate – qualifying at a rate at least two percentage points above the rate they received – at origination.
“Indeed, this prudent factor has significantly contributed to maintaining mortgage delinquencies at a historical low in this country to date. In any case, for-sale inventories have plenty of room to rise before they reach problematic levels.”
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