Could things heat up again in April?
The opening months of the year have been marked by seesaw activity across Canada’s housing market – but signs are emerging that buyers are increasingly ready to step off the sidelines, according to a leading real estate executive.
RE/MAX Canada president Christopher Alexander (pictured) told Canadian Mortgage Professional that after an uneven start to 2024, confidence appears to be strengthening around the likelihood of lower interest rates down the line as shoppers resume their homebuying plans.
That’s not to say, though, that the spring housing market is set to see a big surge in activity, with many buyers still waiting for the Bank of Canada to reveal a timeline for interest rate cuts.
“It’s been an interesting year so far. January was super active, we had a bit of a slowdown in February, and the beginning of March was super active,” he said. “And I think we’re going to be in this up-and-down activity cycle until probably the first rate cut.
“But there’s a renewed sense of consumer confidence that we haven’t had in two years, and that is really encouraging. A lot of what I’m hearing on the street level is just, people believe that the market is going to improve. I think a lot of people can see the writing on the wall that when rates do come down – and this does sound like ‘when’ not ‘if’ anymore – it’s going to be a frenzy again.”
Could an economic slowdown imperil Canada’s housing market?
Markets currently expect interest rates to start falling around the middle or second half of the year. While that should spur an uptick in housing market activity, Alexander also noted a “catch 22” at play: namely, that the beginning of rate cuts will mean the economy “has suffered enough.”
Bob Dugan, CMHC’s chief economist, said the national housing shortage has pushed developers to concentrate on multi-unit projects in Canada’s major urban areas.https://t.co/ExAiaVf89v#mortgageindustry #housingmarket #housingstarts
— Canadian Mortgage Professional Magazine (@CMPmagazine) March 19, 2024
“That usually also means job loss,” he said. “So that can affect demand levels. But all the research we’ve done through the years says the same thing: we’re just [waiting] for better affordability and lesser interest rates before we make our buying decisions. And I just think that that trend is going to continue.”
One familiar hurdle if the market gathers pace again, according to Alexander, will be the chronic supply shortage that’s long plagued Canada’s housing and mortgage outlooks. Inventory has remained tight despite a flood of new listings toward the end of last year, with an upsurge in demand only likely to exacerbate that problem again.
“That’s always been my big concern: how bad is the inventory crunch going to be moving forward?” Alexander said. “Considering this renewed demand now, if prices get strong again, I think you’ll probably see a lot of sellers try to take advantage of that. But it could take some time.”
While activity in the housing market remains mired many levels below the highs it hit during the COVID-19 pandemic, plenty of brokers across the country have noted the prominence of multiple offers and bidding wars on properties.
That trend has been noticed on the real estate side, too – although Alexander said it probably won’t repeat the frenzy of the pandemic housing market because current high interest rates are already squeezing affordability so much.
“I think that’s been the story for much of Canada for 15-plus years: not enough product and lots of people trying to buy,” he said. “The only thing I do see is it’s going to be hard for most consumers to make outrageous bids with the current interest rate environment – even if we get a reduction. I think it’s going to be tough.”
How is the Bank of Canada viewing activity in the housing market?
The minutes of the Bank of Canada’s latest deliberation on interest rates show that it continues to keep a close eye on the housing market, with a possible increase in activity identified as a potential risk on the national inflation outlook.
“While house prices continued to fall in January, recent strength in resales could translate into a pickup in house prices and stoke shelter price inflation,” the Bank said.
Those shelter prices, which currently represent the largest contributor to overall consumer price index [CPI] inflation, are set to remain high, according to the minutes.
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