Canadian buyers are starting to re-enter the housing market ahead of a shopping frenzy that could be triggered by the Bank of Canada’s expected rate cut.
Speculation is growing that Canada’s housing market could start to heat up further after December’s unusual sales rise. Prices remain soft as central banks signal they are done raising benchmark interest rates, helping buyers find the best time to buy property before further competition pushes prices back out of reach. I am trying to do.
Market sentiment has already begun to change. Canadians became more optimistic about home prices in November, and the trend has steadily increased in the months since, according to a poll conducted for Bloomberg by Nanos Research.
It has attracted buyers such as Maria Herrera, 31, a manager at a Vancouver animation company. With her goal of acquiring a two-bedroom condo, she recently jumped back into the market with her husband to buy a home in the suburbs in January after considering a home purchase for the past few years. Agreed.
“I don’t think we’re the only ones who have saved up for a down payment in the last three years,” Herrera said. “When interest rates go down, people get excited and people go back to a bit of a frenzy and buying frenzy.”
Home seekers are having to grapple with a market that is becoming increasingly difficult to tap due to a significant shortage of affordable properties and record immigration conflicts. Housing construction is lower than the roughly 1.8 million immigrants Canada has added in the past year and a half.
“We’re seeing multiple offers again and homes selling above asking price, which is very different from a month ago,” said Toronto real estate agent Theia Eager, adding that there is a new crisis among buyers. He says that he is feeling a sense of well-being. “They’re trying to time the market. They’re starting to feel that the bottom has hit the market.”
Expectations are high for the Bank of Canada’s next move. The central bank kept interest rates on hold at its January meeting, indicating that the main question it now faces is how long to maintain borrowing costs.
Economists polled by Bloomberg expect the central bank to start cutting interest rates by the middle of this year. Data on interest rate derivatives shows traders are betting that interest rates will begin to cut shortly thereafter.
Similar predictions of rate cuts at this time last year continued to drive prices higher through the traditional spring buying season, with prices rising nearly 6% from February to August. This economic recovery forced the Bank of Canada to raise interest rates again in June and July to curb inflation.
“We’re seeing a wave of pent-up demand from people who couldn’t make a decision last year. Suddenly they can afford to do it,” said Stephen Brown, an economist at Capital Economics. “With a wave of buyers wanting to get in before everyone else, it’s very likely that prices will rise considerably in the coming months.”
Now, hopes of a rate cut may be enough to bring buyers into the market. Long-term bond yields fell as markets adjusted to the prospect of lower interest rates. These yields form the basis of fixed mortgage rates, reducing some of the costs and customers now get around 5% interest on a five-year loan.
Even adjustable-rate mortgages are starting to catch the attention of people, including Vancouver’s Herrera. Some buyers have indicated they are willing to take on such loans in the hope that they will save money overall if central banks actually start lowering benchmark interest rates.
“Speculation of a rate cut in 2024 is already generating some buzz in the market,” said Reza Saboor, a mortgage broker in Vancouver. “I think that sentiment is going to drive the market crazy. We have multiple offers in Vancouver and Toronto, and we expect a very busy spring market.”
Strong wage growth and Canada’s record immigration growth are likely to further strengthen the housing market. It is already contributing to the revitalization of the rental market, with rent growth reaching a new high in 2023. That could ultimately lead to a more competitive buying and selling market. Rising rents often narrow the gap between the amount you have to pay your landlord and your monthly mortgage payment, leading more people to consider buying.
The federal government announced efforts to increase housing supply and caps on international student visas to limit demand. However, both changes could take years to penetrate the market. Building a new home takes time, and people moving to Canada still have to find a place to live in a market with few options. The Bank of Canada itself cites Canada’s inability to build housing fast enough to keep up with population growth as a contributing factor to inflation, which is largely out of control.
“They’ve slowed down the housing market, and the housing market is going down, but I don’t think they can stop it from going up again,” said Sean Stillman, a Toronto-based mortgage broker. “More people are coming to Canada, and they need a place to live. The Bank of Canada can only keep this wave behind its walls.”