Analysts share their insights into the projected trends and dynamics of the housing market
The Canadian housing market is poised for a phase of overall stability in the upcoming year, according to a new analysis by Bank of Montreal (BMO) senior economist Robert Kavcic.
Factors such as lower resale prices, easing mortgage rates, and pent-up demand are anticipated to help stabilize the market in 2024, albeit without a return to the rapid price increases seen in recent times.
The analysis shows this year is expected to see a moderate increase in sales volumes, the rise reaching approximately 6%. This growth is attributed to more reasonable property valuations and reduced mortgage rates, which are anticipated to clear the market.
The benchmark home price is projected to reach its lowest point in the spring on a national scale, but by a modest calendar-year decline. Persistent affordability challenges may temper the subsequent rebound.
Psychology has played a significant role in this housing cycle, according to Kavcic. From initial optimism about sustained low interest rates to the sobering reality of rate hikes, market sentiment has been closely tied to Bank of Canada communications and rate adjustments since the pandemic.
With the tightening cycle believed to have concluded, there is a sense of relief among buyers who now have clarity regarding the potential trajectory of interest rates. Moreover, market expectations include the possibility of rate cuts in the upcoming year, which could further bolster confidence.
The completion of the Bank of Canada’s tightening cycle has also prompted speculation about potential interest rate cuts in 2024. It is anticipated that the central bank may initiate rate reductions around mid-year, amounting to a decrease of 100 basis points throughout by the end of the year.
Consequently, there has been a decline in Canadian mortgage rates, with fixed rates experiencing a notable decrease. This reduction in rates, coupled with expectations of further cuts, is expected to positively impact market dynamics.
Demand and supply continue to impact market
Certain regions, notably Ontario, continue to experience downward pressure on prices. However, the combination of pent-up demand and more favourable borrowing conditions may stabilize the broader market. Although Canadian home prices have adjusted to their long-term growth trend, affordability remains a concern, potentially limiting the extent of recovery.
Regional disparities persist, with some markets, such as Calgary, exhibiting strength, while others, like recreational properties in British Columbia and Ontario, face continued challenges. The investment landscape has also evolved, with a greater emphasis on fundamental cash flow-driven strategies over speculative ventures. However, further valuation adjustments may be necessary to align with changing market dynamics.
Policymakers have shifted focus from addressing supply-side issues to acknowledging demand-side factors, particularly in light of population growth trends. While measures to curb excess demand may impact rent growth, significant challenges remain in balancing supply and demand dynamics.
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