With interest rates now 0.5% less than just a few weeks ago, Canadian homeowners and buyers are poised to spur the market back into action.
Whether the two recent rate cuts from the Bank of Canada will be sufficient to electrify the market remains to be seen.
However, Canada is one of the first developed economies to move on interest rates, which have been high across the globe for the past two years in response to the post-Covid spike in inflation.
While the cash rate now sits at 4.5%, retail mortgage costs are still hovering at around 6%-7%. Historically, this is in the average zone, but the price of a home is anything but historically average.
The Canadian Real Estate Association (CREA) predicts the average price of a residence will be $694,393 by the end of the year, based on a 2.5% growth in values for 2024.
Buyers face an additional hurdle of passing the lenders’ stress test, which effectively means they need to be able to afford an 8% mortgage even though they’re applying for a 6% deal.
The idea is to ensure they can handle steeper interest rates, should they return.
It’s not a test unique to Canada. Many other economies have similar prudential rules, including Australia and New Zealand.
Affordability is still dictated for many by their choice of city. Toronto and Vancouver have priced themselves beyond the reach of many, and the provinces of Alberta and Saskatchewan are heading the same way with a surge in values over the past three months.
Our economy is another factor that will influence how the market bounces back. Some 67% are concerned about the economic picture, according to the Household Outlook Index, conducted by Maru Public Opinion in July. Almost 40% are worried about job security, a separate survey by Leger says.
Like similar economies, Canada will probably need a full percentage-point reduction before buyers and sellers respond in significant numbers.
In the meantime, buyers prepared to fossick for bargains are best placed in the current market.
Some 180,000 properties were listed for sale at June 30, an increase of 26% from 12 months earlier. The average is 200,000.
So, the situation for both buyers and sellers is by no means impossible. Once rates fall further, prices are likely to rise, bringing more sellers into the market.
Whether you’re buying, selling or both, the stability of our market – albeit subdued – provides opportunities for everyone to make solid, sound decisions about their next property purchase.