Turning Point’ in Housing Market Expected This Year as Economists Foresee Interest Rate Reductions

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The Canadian housing market could bounce back in 2024, after a year of cautiousness and changing expectations due to higher borrowing costs, according to economists.

This outlook depends largely on the prediction that the Bank of Canada could start lowering its key interest rate from the current five per cent level as soon as the second quarter of this year.

“We’re obviously watching for a turning point in the market,” said TD Bank economist Rishi Sondhi.

“We’ve had some, I would say, weaker sales and price activity over the past few months … We’re getting some indications that the market, at least from a demand perspective, is starting to turn around.”

The Canadian Real Estate Association reported in its most recent data on national home sales and prices that the market has been soft since the end of last summer, with sellers and buyers both holding back.

Price drops have been mostly concentrated in Ontario lately, but home prices also began to decline in the Fraser Valley, Winnipeg and Halifax by the end of the year. In other provinces, such as Alberta, Saskatchewan, New Brunswick, Prince Edward Island and Newfoundland and Labrador, prices were either stable or rising.

“I wouldn’t expect anything too headline-grabbing from the resale housing market for the next few months,” noted CREA chair Larry Cerqua in December.

“That’s a good thing, because a market that looks to be stabilizing in balanced territory increasingly suggests the soft-landing scenario.”

In Vancouver, realtor Tim Hill with Re/Max All Points Realty said he’s hopeful as his clients’ mood has gradually improved thanks to slight price gains in recent months.

“We’re still riding some rocky seas, right?” he said.

“I think that we’re going to see consumer confidence increase, at least partially, probably by quarter two realistically. But I think we’re going to start seeing people talking about making those moves again for 2024.”

The Bank of Canada has kept rates unchanged for three consecutive decisions as inflation slowed down, but the central bank has indicated that it could still hike rates even though most forecasters expect the next move to be a cut.

Sondhi recognized that risk, if inflation stays “more stubbornly elevated than anticipated” in the next few months.

“Then the bank might be forced to, at the very least, maintain a higher-for-longer stance,” he said.

RBC assistant chief economist Nathan Janzen said the interest rate story is one of many uncertainties as the new year begins. He is also keeping an eye on the labour market, which he said has been weakening.

“It’s not surprising against that backdrop to seeing housing activity softening, late last year as well,” Janzen said.

“We have housing activity remaining fairly sluggish to start 2024, but inflation has also been slowing. What that means is the Bank of Canada is getting closer to the point where they can start taking their feet off the monetary policy brakes of the economy and inch closer to a pivot to interest rate cuts.”

He said this could lead to more activity and “small increases in prices” in the second half of the year, as he projects home prices to move “gradually higher” across all markets.

He said he doesn’t expect a quick recovery even when the rate cuts begin, since that process will likely be slower at first than the rate hikes seen last year.

A rate cut could “spur excitement and activity,” said Anne Marie Lorusso, a Toronto real estate agent with Freeman Real Estate Ltd.

“Even those who are not quite ready will hope for lower interest rates next time,” she said.

“I believe the spring market will be good. Sellers will be eager and will stick to their prices and buyers will have to figure out what they can afford.”

The latest on inflation in Canada But Hill said he’s telling clients not to wait, even though borrowing costs are still high now.

“My warning to my clients now is don’t do what everyone else will do,” he said.

“When our markets change, it’s like the tap just turns on and then everyone comes running. The problem is now all our buyers are competing again and they come fast and furious too. It feels like the Wild West.”

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