Buyers Hindered by Affordability and Cost of Living, Unlikely to See Surge in Spring Housing Market

After five consecutive holds of the Bank of Canada’s main interest rate following a period of rate hikes lasting over a year, experts anticipate a resurgence in the national housing market. However, this rebound may not be significant just yet.

The Bank of Canada is likely to maintain its current interest rate when it makes its decision on April 10, but the future direction remains uncertain.

Given the possibility of modest rate cuts later in the year—with some predictions suggesting cuts could start as early as June—it may take time before potential buyers regain enough confidence to re-enter the market.

This uncertainty could lead to caution among buyers during the spring season, according to TD Bank economist Rishi Sondhi.

Sondhi described Canada’s housing market as being like a coiled spring, indicating that sales and prices tend to increase significantly when there is a market jolt, such as an interest rate decrease.

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“There’s significant pent-up demand out there, particularly in Ontario and B.C., so it just takes a bit of a spark.”

In its latest report on national home sales and pricing data, the Canadian Real Estate Association suggested that February could signal “the last relatively uneventful month of the year.”

“After two years of mostly quiet resale housing activity, there’s a feeling that things are about to pick up,” stated CREA chair Larry Cerqua last month.

“At this point, it’s hard to know whether buyers are going to wait for a signal from the Bank of Canada or whether they’re just waiting for the spring listings to hit the market.”

Realtor Dean Artenosi in the Greater Toronto Area referred to the current situation as a “tipping point where the worst is behind us.” He noted that the central bank’s consistent rate holds imply that interest rates have stabilized, leading to increased buyer optimism.

“The mood and the mindset, the psyche, is that we’re back to a normal market,” commented Mr. Artenosi, co-owner of Coldwell Banker The Real Estate Centre Brokerage.

“People have gotten comfortable … and are used to making the payments at these higher rates. Buyers are starting to come back into the marketplace. Obviously there’s talk of the rates starting to come down now and we’re seeing multiple offers again on some properties.”

In the western region, activity slowed down in March after a strong start in 2024, according to Tim Hill of Re/Max All Points Realty.

Hill mentioned that many clients are currently in a holding pattern while anticipating rate reductions. Some are considering the pros and cons of purchasing before rates decrease, which is projected to trigger price growth with lower borrowing costs.

“We can all feel pretty confident that (the central bank is) not making a change yet, as much as people might wish. But maybe we’ll get some more information in their press release of where their heads are at and when we might see that Bank of Canada rate come down,” stated Mr. Hill.

“For me, I’m feeling now that we’ve seen this kind of lull, I think April is going to be a really tell-tale month for how the rest of the spring goes.”

RBC assistant chief economist Robert Hogue forecasted a “gradual” rebound later in the year as the central bank continues its rate-cutting cycle, rather than a sudden surge in activity after the initial reduction.

He highlighted exceptions to this prediction, such as the strong Calgary market despite high rates. Interprovincial migration and limited inventory have sustained a tight market in that city, as reported by the local real estate board.

“That’s a market that continues to be pretty robust and we don’t see that changing,” noted Mr. Hogue.

Despite pent-up demand, affordability remains a significant challenge in markets like Toronto, Vancouver, and Montreal.

“I don’t see it as much of an issue of being prudent or cautious, but more in terms of the budget constraint to buyers,” mentioned Mr. Hogue.

He suggested that Canada might witness a “series of small waves” in certain markets in the coming months, with increased activity as buyers aim to take advantage of rate cuts.

“For those mini-waves to be sustained, you need a critical mass of buyers making their way back into the market,” added Mr. Hogue.

“For that, our view remains that we need to see a significant drop in mortgage rates, which I think is more of a second half of 2024 story than the spring market.”

Mr. Artenosi advised his clients against waiting. While borrowing conditions may improve in the future, he warned of factors like Canada’s growing population that could make buying at an affordable price more challenging.

Statistics Canada’s live population tracker revealed that Canada’s population surpassed 41 million in late March, less than a year after reaching the 40-million milestone.

“Playing the waiting game is a mistake,” stated Mr. Artenosi, who cautioned that those delaying their purchase may find themselves in bidding wars more frequently.

“There’s going to be no perfect scenario.”