Royal LePage believes a market rebound will occur in the current quarter
The Canadian housing market suffered from higher interest rates and inflation-squeezed household budgets, but prices still managed to end 2023 higher than a year earlier, according to a new report.
The Royal LePage House Price Survey published today (Jan. 15) reveals that the aggregate price of a home in Canada increased 4.3% year-over-year to $789,500 in the fourth quarter of 2023. However, there was a 1.7% decline during the three month period compared to the previous quarter.
The report is based on weighted median prices and proprietary property data across 63 of Canada’s largest housing markets.
When looking at specific property types, the national median price of a single-family detached home increased 4.4% year-over-year to $816,100, while for condos there was a 4% increase to $583,900. Quarterly data shows a decrease of 2.1% and 0.6% for the two property types respectively.
Phil Soper, president and CEO of Royal LePage says that the stats show that the idea that the housing market requires lower interest rates before it will rebound, is not accurate.
“The recovery will begin when consumers have confidence the home they buy today will not be worth less tomorrow,” he said. “We see that tipping point occurring in the first quarter, before the highly anticipated easing of the Bank of Canada’s key lending rate.”
Soper believes that buyer sentiment can have as much of an impact on the housing market as rates and inventory, with that sentiment set to rise when prices stabilize. “And we are very close to that now,” he said.
Correction not erased
However, there is some way to go before homeowners see prices return to where they were before the correction. The national aggregate house price is almost 8% below the peak reached in the first quarter of 2022, although it is almost 19% above its Q4 2020 level and more than 22% above pre-pandemic Q4 2019.
Soper’s reading of the situation is that, with people of core homebuying age employed, savings elevated, and discretionary spending constrained, buyers are still able to buy, but are waiting.
“Nearly two years after the Bank of Canada began raising rates, mortgage delinquency remains at historic lows. We believe many who need housing have the capacity to enter the market, they simply lack the confidence to transact,” he explained.
Rates to spark rebound?
The Bank of Canada will have a difficult decision to make on interest rates in the months ahead as it tries to balance potentially bringing down rates – much needed by those on variable rate mortgages or about to renew a fixed rate loan - while avoiding fuelling inflation. If it opts to make even a modest cut, it could ignite the housing market.
“Similar to what we witnessed last spring, when the Bank of Canada paused rates for the first time in a year causing sales activity and prices to increase almost immediately, the first sign of rate cuts – even if only by 25 basis points – could create a flurry of activity in the real estate market, releasing pent-up demand. Those who have been holding off listing their homes will follow close behind.”
As always, real estate has regional variations and the house price data swings from an annual gain of 13% in Trois-Rivières to a decrease of 6.5% in Richmond.
