Mid-Year Market Update for 2024

Once again, the number one story in real estate this summer is mortgage rates. But unlike last year, when a surprise series of rate hikes from the Bank of Canada sent skittish buyers back to the sidelines, all signs now point to the opposite scenario. Instead of market-chilling rate hikes, economists now expect market-quickening rate cuts—possibly starting as soon as this month.[1]

That means the housing market is likely to get interesting over the next few months. If fixed mortgage rates continue to drop in anticipation of a lower policy rate, more buyers are expected to show up looking for a deal before home prices take off in 2025 and 2026.[2] Listings are also on the upswing and homeowners are feeling increasingly optimistic that their home values will rise over the next year, per a new Canada Mortgage and Housing Corporation (CMHC) study. So we could see more sellers-in-waiting regain the confidence to list their homes at strong but realistic prices.[3,4] With pent-up demand continuing to build, housing market activity could pick up significantly. As TD Bank Economist Rishi Sondhi noted in an interview with The Canadian Press, Canada's housing market is “akin to a bit of a coiled spring.” Often when there's a market-moving event like a rate cut, home sales and prices jump quickly.[5] What does that mean for you? Read on for our take on this year's most important real estate news and get a sneak peek into what analysts predict is around the corner for 2024.

MORTGAGE BORROWERS SHOULD FINALLY GET SOME RATE RELIEF

After more than a year of shifting forecasts and delays, it's finally happening: the Bank of Canada's first rate cut since 2020 is nearly here. The central bank is gearing up for two back-to-back meetings this summer to discuss monetary policy, plus three more meetings before year-end. Most experts think we'll see our first rate cut as early as June 5 or in late July.[6] But with inflation still elevated in the U.S. and the job market showing surprising gains here at home, the total number of rate cuts we'll see in 2024 is anyone's guess.[6] Market watchers are nervously eyeing warmer-than-expected economic data from both sides of the border, with some now second-guessing whether rates will fall as much as hoped.[6,7] Previously, many economists thought federal rates would fall by at least a point this year.[8] Sticky inflation down south is already putting pressure on bond yields, which help determine the fixed rates lenders charge.[7] If the U.S. economy stays hotter than expected, the Bank of Canada may be forced to delay additional rate cuts, which could further impact mortgage rates.[9] As Bank of Canada Governor Tiff Macklem cautioned, Canada's central bank is ready and willing to cut rates before the U.S. Federal Reserve. But there's “a limit” to how much faster they can go. If too much daylight exists between the countries’ key interest rates, that could weaken the Canadian dollar and further boost inflation.[9]

What does it mean for you? If Canadian homebuyers' past behaviour is any indication, any drop in the Bank of Canada’s policy rate—even a delayed one—is likely to fuel enthusiasm and spark competition. But with lenders already pricing in the first rate cut expected this summer, it could be a while before fixed mortgage rates drop further. If you're a buyer, ask us to refer you to a mortgage broker so you can lock in a competitive rate. It's been a tough year for mortgage originations, so lenders are hungry for new business and may be more willing to cut you a deal.

PENT-UP DEMAND COULD SOON BURST INTO VIEW

With at least one quarter-point rate cut in the cards and potentially a few more on the way, the last six months of 2024 are unlikely to mirror the first half of the year. As the Canadian Real Estate Association (CREA) noted in a recent market forecast, housing markets throughout the country have been unusually “quiet” this year thanks to still-high rates and lingering uncertainty. But that doesn't mean home sales will stay soft going forward.[10] On the contrary, market activity is expected to pick up once rates recede.[2,7] According to new research from BMO, aspiring homebuyers' financial readiness is looking up. But 72% say they're waiting for lower rates before they get serious about buying a home.[11] New federal measures could also juice the housing market by boosting demand from first-time buyers. New homebuyers, for example, can now borrow up to $60,000 from their RRSP to fund a down payment—$25,000 more than the Home Buyers' Plan previously allowed. Beginning August 1, first-time buyers with insured mortgages will also be allowed a 30-year mortgage term if they purchase new construction.[12] Affordability constraints will still be a major sticking point, though, for many Canadian homebuyers, which could dampen sales if buyers and sellers continue to butt heads over prices.[13]

What does it mean for you? Get ready to move quickly. Increased competition almost always means faster home sales—and a need for quick decision-making. If you're a buyer, make sure your papers are in order and you have cash ready for a deposit. And if you're a seller, consider listing now before pent-up supply leads to an uptick in inventory. After all, budget-conscious homebuyers aren't the only ones who have been sitting on the sidelines for the past two years.

PROPERTY VALUES WILL CONTINUE TO INCREASE

The good news for homebuyers: Today's home prices are down significantly from where they were toward the tail end of the pandemic. The bad news: That's probably not going to last. Experts say that home prices have almost certainly bottomed out.[14,15] In fact, the CMHC thinks home values could return to peak levels as early as next year before hitting an all-time record high in 2026. As the CMHC notes, home prices and sales declined significantly after rates began to jump in 2022. But in the years since, Canada's population boomed at a record pace, while many people saw their incomes and savings increase. As a result, there's now a bigger pool of potential homebuyers.[16] That doesn't mean, though, that home sales will be so strong that sellers can expect the same level of price gains they saw before. As researchers at TD Bank note, rate cuts will help boost prices for now. But “affordability pressures will likely keep the gains from being even stronger.”[15] The CMHC projects that lower-priced homes will enjoy the fiercest competition. But overall sales activity will be more modest than in 2020 and 2021 when rock-bottom rates made mortgage payments more affordable.[16]

What does it mean for you? Even with rate cuts, a typical mortgage payment will be difficult for the average household to absorb, so expect affordability issues to limit overall price growth. Sellers will need to be realistic with their asking price and negotiation tactics—especially if they're looking to close quickly. Buyers, on the other hand, might not want to wait long if they can afford to make a deal. Increased competition could lead to a bigger-than-expected price surge.

EVEN WITH MORE HOMES FOR SALE, INVENTORY WILL BE TIGHT

According to a winter survey by Dye and Durham Ltd., more than a quarter of Canadians have been holding out for a rate cut before buying or selling a home. So we could see a lot more homes go up for sale this year once rates decline.[17] Already, inventory is picking up as more sellers come to market, giving new buyers more choices when comparing homes. The spring market, in particular, saw a notable jump in listings.[3,15] But even if more homes come to market this summer and fall, the total number of Canadians who want to buy a home will still surpass the number of homes available. So both the resale market and new home market are likely to remain squeezed for some time.[18] In fact, TD Economics estimates that Canada will be short of more than 300,000 homes between 2023 and 2025. Adding to the problem: Housing construction continues to lag population growth and, despite some recent improvements, it is still far from catching up.[18] Persistently high rates are also discouraging builders from starting new projects. So the inventory of available homes is likely to get tighter. The CMHC expects housing starts to decline in 2024 and drop even more significantly in 2025.[16]

What does it mean for you? With inventory increasing and many prospective homebuyers still priced out of the market, buyers who can afford it may be able to retain some bargaining power—especially for premium homes. However, total inventory is expected to remain tight, so sellers are still more likely to have the upper hand. Competition for more affordable homes will be especially steep.

WE’RE HERE TO GUIDE YOU

With nationwide news like rate cuts still playing a big role in today's housing market, it can be useful to get a high-level overview of what's happening across Canada. But the most important factors behind most real estate transactions are local. So on-the-ground expertise is essential. As local market experts, we can help you navigate your neighbourhood's housing market with ease and understand what's driving home values and sales. If you’re considering buying or selling a home, contact us for a free consultation so we can help you build a successful plan.

The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs. Sources:

Oksana UliskoJune 1, 2024

Mid-Year Market Update for 2024

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