Canadian real estate markets are expected to fumble in the first half, but make up for it in the second. RBC Economics shared its latest forecast for Canada’s housing markets this morning. The country’s biggest bank believes interest rates are running the show, and the first six months of 2024 will be slow. As rate cuts begin to appear by mid-year, they expect sales will get a boost—though not enough to prevent prices from falling this year.
Canadian Real Estate Markets To Have A Slow Start To 2024
Canadian residential real estate markets are expected to see a slow first half to the year. There’s been some mild relief when it comes to financing fixed rate mortgages, but not enough for prices at these levels. Especially with elevated interest rates.
“We expect slow activity and softening prices in the early part of the year as the Bank of Canada keeps its policy rate high,” explained Robert Hogue, assistant chief economist at RBC.
Adding, “Interest rates will continue to dictate the outcome of Canada’s housing market in 2024. But a pivot toward rate cuts mid-year will get the wheels turning faster over the second half or perhaps even sooner.”
Considering the Spring market is the busiest time of year, this can have a big impact on prices. Fewer buyers and a lot more inventory can apply more downward pressure. Virtually every economist expects rate cuts though, so this may not be an issue for very long.
Rates Cuts In The Second Half Will Boost Home Sales In Canada
RBC is on the same page with virtually every economist in Canada, expecting lower rates by mid-year. That will combine with other pro-market factors such as rapid population growth, stronger than expected wage growth, and pent-up demand. Consequently, the bank has a potential turnaround for market activity in the second half of the year. At least when it comes to sales.
Their forecast is projecting existing home sales to reach 484k units in 2024, 9.2% higher than last year’s finish. Those volumes are forecast to rise further next year, but still not reach pandemic-frenzy levels.
Source: RBC Economics.
Canada May See Higher Sales, But The Bank Expects Lower Prices
An improved market is not the same as a market boom, a point RBC appears to be stressing. Home sales are expected to rise but more inventory and stretched affordability will push prices lower.
“Improving sales prospects are bound to attract more sellers,” said Hogue.
It’s typical for higher sales volumes to support prices, in turn attracting more sellers looking to take profits. It won’t be the only pressure adding inventory though.
The sudden influx of investors over the past few years may be looking to get out. Especially as financing costs reduce profitability of long-term rentals.
“Mortgage renewal payment shocks could also prompt more owners to put properties on the market. An influx of sellers would keep supply-demand conditions in balance, and temper any upward pressure on demand. For-sale inventories have been rebuilding over the past couple of years after reaching historical lows earlier in the pandemic.”
Crushing affordability also isn’t likely to improve soon. Neither are wages after interest rates fall, since interest rates are cut during poor economic growth. Poor economic growth tends to kill wage growth, eliminating the current support factor.
“Poor affordability conditions will restrain the recovery at first despite plenty of pent-up demand to satisfy,” he said.
The bank’s forecast currently calls for a 1 point decline in prices this year. It’s forecast to follow that with a 3-point increase next year, which is substantial but more in-line with inflation.
Interest rates falling into next year are likely to offset the mild increase, further supporting their sales forecast.
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