Recovery is likely to begin in earnest only by mid-2024, new report suggests
Home sales activity and average prices in Canadian markets will see noticeable declines over the next few months before recovering by Q2 2024, according to a new report by TD Economics.
The Bank of Canada’s interest rate trajectory had a major influence on the current situation, and the current 5% benchmark policy rate will likely continue to weigh on housing market dynamics, TD said.
“Following a rebound this past spring, Canada’s resale activity has succumbed to another wave of downward pressure since the summer,” TD said. “The major catalyst for this latest weakness was the BoC, which ended a four-month period on pause by hiking its policy rate in both June and July, while maintaining a bias towards additional tightening.”
TD said that the cumulative BoC hikes made things more difficult for a market that was already on the retreat to begin with.
“National sales have pulled back by about 5%, partially retracing the moderate rally this past spring,” TD said. “Sales remain about 12% below their pre-pandemic levels.”
Volatility in the bond yield market has also had a chilling effect on the market.
“The five-year Government of Canada bond yield has increased about 130bps over the past six months to a new multi-year high of around 4.2%,” TD said.
Despite scaled-back rate cut expectations, North American central banks are anticipated to transition to lower interest rates by 2024, says Royal Bank of Canada.
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 12, 2023
Read more: https://t.co/owZoNpqaj4#mortgageindustry #banknews #interestrates #ratecuts
Rate cut could boost market dynamism
TD noted that potential rate cuts by the BoC beginning in 2024 might be the shot in the arm that a languid market will need.
“Relative to third quarter levels, sales and prices should be about 10% and 5% lower, respectively, by the end of 2024 Q1,” TD said. “Thereafter, we expect both sales and prices to pick up, starting in 2024 Q2.”
Rate cuts coinciding with rising unemployment would help take the heat off wage growth, “while core inflation will likely be moving closer to the [BoC’s] 2% target.”
“Population growth should also remain robust, while job markets bend (but not break) under the weight of higher rates,” TD added, while stressing that “historically challenging affordability backdrops in most provinces will likely temper the extent of the rebound in housing.
“Indeed, we suspect that it will take until 2025 for Canadian home sales to sustainably surpass their pre-pandemic level.”
