After a year that was challenging in many ways, analysts believe that the conditions may change favorably this year for a rebound in the Canadian housing market. Due to the lower interest rates, it is expected that the demands and sentiments would get a boost.
The Slowdown in Canadian Housing Market in 2023
In 2023, the Canadian housing market experienced a significant cooldown as mortgage rates rose sharply. Samantha Hudes from The Canadian Press says that sellers and buyers have adopted a cautious approach, contributing to softer sales activities and more modest price gains compared to recent years.
Data from The Canadian Real Estate Association (CREA) shows that the national home sales fell each month in the second half of 2023. The prices had also started to pull back in Ontario and some other regional markets like Fraser Valley, British Columbia, and Halifax, Nova Scotia as buying power eroded day by day.
Outlook Dependent on Interest Rates
It is widely anticipated by the economists that Bank of Canada (BoC) will gradually lower its policy rate from the current five percent in the second quarter of 2024. TD Bank economist Rishi Sondhi notes this could mark an important turning point in the Canadian housing market that boosts both demand and confidence among consumers.
If rates decline as forecasted, it would put downward pressure on variable mortgage rates and open the door for fixed-rate borrowers to renegotiate their loans at lower costs. This is expected to give housing affordability a needed boost.
According to Vancouver realtor Tim Hill from Re/Max All Points Realty, sentiment among clients has gradually shifted in recent months as price declines moderate. Though the market remains uncertain, Hill predicts consumer optimism will increase further once interest rate cuts materialize. This bodes well for sales activity picking up through 2024.
CREA Chair Larry Cerqua commented in December that stabilization appears to be taking hold in balanced markets across the country. If rate cuts coincide with labor conditions remaining reasonably strong, economists like Nathan Janzen from RBC believe the housing cycle could sustain a soft landing with limited downside risks.
Janzen however notes the job market has been weakening and represents an important factor to watch moving forward. Sondhi also cautioned that stubbornly high inflation could force the BoC to maintain higher rates for longer than expected, delaying the recovery.
Regional Divergence Remains
While the national trend points to a rebound, conditions will likely continue to vary locally. Prices held up well in Alberta, Saskatchewan, and Atlantic Canada last year whereas Ontario endured sharp price declines led by the GTA. Any resurgence may unfold differently across urban versus rural settings too.
Most analysts don’t foresee home prices returning to the lofty heights reached before 2023 anytime soon. The slowdown has reset affordability and list-to-sale price ratios to more sustainable levels in many major centers like Toronto, Vancouver, and Victoria. A steady rise rather than steep gains appears the most plausible scenario according to experts.
Easing of restrictions around foreign buying and corporate ownership in British Columbia could however stimulate outsized demand in that province’s pricier coastal communities. Overall, economists seem united that the necessary conditions are starting to fall into place for a housing market turnaround to materialize in 2024. But challenges like high living costs remain a drag on affordability.
In summary, after bracing harsh conditions that cooled homebuying fever nationally, real estate watchers are increasingly optimistic the sector has entered a new growth phase led by anticipated interest rate cuts from the Bank of Canada. While the recovery may be uneven, lower financing costs bode well for home sales and prices to trend upwards across most regions next year. The return to stability represents a welcome development for the economy after volatility defined 2023.
