Further reductions needed to spark market, according to economist
The Canadian housing market remained in a stalemate through May despite the Bank of Canada's recent rate cut, according to the Royal Bank of Canada (RBC).
Home resales dipped by 0.6% and prices by 0.2% compared to April. High interest rates and ongoing affordability challenges have kept many potential buyers on the sidelines, awaiting clearer signals from the market.
The central bank’s recent rate cut in early June might be the trigger needed to stir some activity. However, RBC assistant chief economist Robert Hogue, said that more significant changes may be necessary to pull a substantial number of buyers back into the market.
“The BoC’s June rate cut could potentially spur activity if it pulls in a critical mass of buyers from the market’s sidelines,” Hogue wrote in RBC’s latest housing market update. “However, our view is a 25-basis-point reduction in the still high policy rate won’t make much of a difference for most budget-constrained buyers.”
Hogue suggested that additional rate cuts will be essential to unleash the pent-up demand that has accumulated over the past couple of years.
“We expect the central bank to cut its rate by a further 75 basis points by the end of this year and by 100 basis points in 2025,” he added.
Inventory levels
While potential buyers wait for more favourable conditions, housing inventory levels are rising.
In May, new listings increased for the fourth consecutive month, and inventory levels, measured in months of sales, returned to pre-pandemic levels at 4.4 months. This uptick in supply is gradually balancing the market, which had previously reached extreme lows during the pandemic.
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High interest rates continue to impact current mortgage holders, prompting some, including investors, to sell. Additionally, a wave of housing completions is bringing more properties to market. In Toronto, a surge in newly completed condo projects has significantly contributed to inventory growth.
“We expect muted demand and growing supply will keep prices largely stagnant in the near term in most markets outside the Prairies,” Hogue noted.
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