Could activity start to heat up again?
The Bank of Canada has opted against raising interest rates again, holding things steady for the first time since the spring – so what does it mean for the national housing market?
Sales activity and home prices started to rebound after the central bank decided to hit pause for the first time this year in March, with the economy’s subsequent resilience worrying the Bank enough to justify a resumption of rate increases by June.
Perhaps mindful of the prospect of that trend repeating itself, the Bank emphasized in its September statement – which kept the overnight rate on hold at 5.0% – that it “remains concerned” about underlying inflationary pressure and stressed that it would be prepared to increase rates further if required.
That warning could be set to weigh against a housing market resurgence for the remainder of the year. In Toronto, traditionally one of Canada’s two hottest markets alongside Vancouver, a lack of clarity over the prospect of further rate hikes will probably give many buyers and sellers pause for thought in the coming months, according to the city’s real estate board.
“In the short term, we will likely continue to see some volatility in terms of sales and home prices, as buyers and sellers wait for more certainty on the direction of borrowing costs and the overall economy,” Toronto Regional Real Estate Board (TRREB) president Paul Baron said in the release of the city’s latest housing market statistics.
Toronto-based broker Sung Lee (pictured top) of Swivel Mortgage told Canadian Mortgage Professional prior to Wednesday’s Bank of Canada announcement that the outlook remained “a bit foggy” on the likely direction of rates for the remainder of the year, with little indication that things will remain steady for the rest of 2023.
“It’s a strange time because it’s gone from what we saw as a sellers’ market to a bit more of a balanced market, and now it seems to be trending towards more of a buyers’ market,” he said.
“Until we have a clearer view of what is going to happen with rates in terms of when it’s finally going to stabilize, and then eventually come down, I don’t expect a huge uptick for both the real estate and mortgage markets.”
Bank of Canada maintains policy rate, continues quantitative tighteninghttps://t.co/qJn6I1lnp1#economy #cdnecon
— Bank of Canada (@bankofcanada) September 6, 2023
Could Canada’s hottest markets see price relief?
RE/MAX’s latest report on housing market prospects for the coming months indicated that home prices across all home types across Canada were unlikely to shift for the rest of the year, with high interest rates among the chief factors contributing to a milder outlook.
Thirty-three percent (33%) of Canadians who are contemplating buying or selling a home over the next year will hold fire on a purchase or sale while they wait to see what happens with interest rates, according to a Leger survey carried out in conjunction with that report.
A cooler market and slower price growth may provide welcome relief in some regions where homebuyers have seen buying power squeezed by rising rates – but there’s still no end in sight to the housing affordability crisis in Toronto, according to new research from Desjardins.
In the worst-case scenario for Toronto’s housing market, a recession on par with that of the 1990s would see average home values in the city plunge by 16% by the end of 2024 and 30% by the end of 2025, the report by Desjardins economists noted.
However, “even if that improbable outcome were to materialize within the next three years, it would only bring Toronto’s home price to per capita disposable income ratio back to still stretched, late 2015 levels,” the report added.
Rates likely to remain higher for longer
The outlook for Canadian buyers is also clouded by the fact that even if the Bank decides against further rate hikes in the coming months, there also appears little to no prospect of imminent rate cuts.
Two additional labour market reports and two inflation reports are set to arrive before the Bank’s next decision – and while softer economic data for the remainder of the year is likely to see rates stay where they are, the central bank has also shown that it’s prepared to act further if required, according to RBC’s assistant chief economist Nathan Janzen.
“The Bank of Canada remains highly data-dependent and won’t hesitate to push interest rates higher if necessary to return inflation to the 2% target rate,” Janzen said in RBC’s response to the latest rate decision.
