How are move-up buyers impacting housing demand?

Move-up buyers were a major driver of demand for residential assets throughout the second quarter of 2023, according to a new report by RE/MAX Canada.

“What began as a trickle of movement into housing markets late in the first quarter turned into a swell,” RE/MAX said in its latest analysis, which looked into nine of the country’s largest markets.

“Buyers took advantage of the Bank of Canada’s temporary pause in overnight rate hikes in the second quarter of the year, sparking a flurry of activity in the mid- to upper-price ranges,” RE/MAX said. “Tight inventory levels placed upward pressure on values, prompting double-digit price increases in five of the markets analyzed.”

We have maintained our policy interest rate at 4.50%.

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— Bank of Canada (@bankofcanada) April 12, 2023

Between January and June of this year, the most significant price gains were registered in Regina, Greater Toronto, Hamilton, Winnipeg, and Montreal.

“Meanwhile, single-digit price upswings were noted in the four remaining markets – Greater Vancouver, Calgary, Ottawa and Halifax – as sellers held on to properties that fell short of peak price levels reported one year ago,” RE/MAX said.

Christopher Alexander, president of RE/MAX Canada, said that the marked increases in the overall value of Canadian real estate compelled a significant number of households to move up to larger homes or more desirable communities.

“While the threat of further interest rate hikes has given some pause to the market, particularly at entry-level price points, robust equity gains over the past five-year period provided the means and confidence to fuel solid buyer intentions in move-up markets across the country,” he said.

Inventory continued to be snapped up rapidly

The BoC’s Q2 interest rate freeze paved the way for the reemergence of inventory challenges in most urban markets, according to Alexander.

“Quality listings were quickly snapped up, many moving in multiple-offer situations, which served to draw more sellers into the market in April,” Alexander said. “By May, the market was moving full speed ahead until the BoC announced its decision to raise the overnight rate in June and again in July, taking the wind out of the proverbial sails of most markets, with some exceptions, namely Calgary, Regina, and Montreal.”

However, the BoC’s current policy rate of 5%, combined with perennial issues in the pace of housing construction, will prove to be a drag on purchase activity this summer.

“One simply cannot understate the serious repercussions the housing shortage will continue to have on Canadian real estate and affordability,” Alexander said. “In the short term, while the BoC’s movements may clamp down on housing demand, especially at lower price points, we expect they will have unintended consequences, serving as a temporary dam causing pent-up demand to build and new home construction to contract.”