Canadian homeowners seeking housing upgrade took advantage of pause in rate increases
The Canadian housing market faced an upsurge of demand for residential properties in the second quarter of the year, according to a new report by real estate giant RE/MAX Canada.
That trend was spurred by move-up buyers or homeowners looking for a housing upgrade as they took advantage of the Bank of Canada’s temporary pause on overnight rate hikes in April and May.
“When the Bank of Canada signalled its intent to hold on further interest rate hikes, the floodgates opened, sending buyers into the market from coast to coast,” said Christopher Alexander, president of RE/MAX Canada.
Due to tight inventory levels, there was a pressure placed on the market values which caused prices to rise by double digits in five of the nine markets analyzed by the report between January and June.
These markets included Regina, Greater Toronto, Hamilton, Winnipeg, and Montreal. Still, the four remaining markets – Greater Vancouver, Calgary, Ottawa, and Halifax – experienced single-digit price increases.
The report said that this staggering increase in demand was further influenced by the market’s fear of rate hikes continuing, leading many buyers to take advantage of the temporary pause.
Alexander noted the impact of the Bank of Canada’s move to increase the overnight rate in June and July on the housing market.
“By May, the market was moving full speed ahead until the Bank 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,” he said.
With the central bank’s key rate sitting at 5%, it is expected that homebuying activities will slow down in the summer within most of Canada’s major housing markets. However, it is expected that once the Bank’s rates begin to relax, the demand for housing will eventually rise again.
“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,” Alexander said.
“Inevitably, periods of contraction and short-term restraint ultimately give rise to increased pent-up demand. You can only hold back the impetus for so long. Real estate, after all, is driven largely by lifecycle events and broader factors such as population growth,” said Elton Ash, executive vice president of RE/MAX Canada.
“While some will adjust their timing, most purchasers will eventually move forward, and we’ve seen that pattern emerge time and time again as move-up buyers nationwide re-ignite demand and competition for a limited number of listings,” he added.
With the presumed eventual rise in housing demand, Alexander said the current housing shortage will bear repercussions on Canadian real estate and its affordability.
“When the BoC decides to finally relax quantitative measures and the dam bursts, housing supply will fall even shorter amid record population growth,” he said.
