Royal LePage report shows unusual dynamic during peak spring period
Canadian house prices remain sticky, especially in key markets, despite a weaker spring sales period as buyers wait for lower interest rates.
Royal LePage has released its latest House price Survey today (July 11) which shows that the aggregate price of a home in Canada increased 1.9% year-over-year and 1.5% quarter-over-quarter to $824,300 in the second quarter of 2024.
"Canada's housing market is struggling to find a consistent rhythm, as the last three months clearly demonstrated," said Phil Soper, president and CEO, Royal LePage. "Nationally, home prices rose while the number of properties bought and sold sagged; an unusual dynamic. The silver lining: inventory levels in many regions have climbed materially. This is the closest we've been to a balanced market in several years.”
Soper added that some buyers had rushed to buy ahead of rate cuts in the spring, concerned that lower borrowing costs would spike demand, but this was not the case with June’s rate cut prompting a tepid response from housing markets.
"A change in monetary policy drives consumer behaviour in two important ways. Lower rates mean lower monthly payments, opening the door to some families previously shut out of the market. Secondly is the psychological signal broadcast to sidelined buyers that the tide is turning, and that market activity is about to pick up again," added Soper. "Not surprisingly, the quarter-point cut to the bank rate didn't substantially improve the affordability picture.”
RLP’s research earlier in 2024 found that the overwhelming majority of potential home buyers would need more than a small rate cut to take the plunge into the housing market. Meantime, prices continue to rise.
"2024 marks the fifth year since the pandemic and post-pandemic rebound began to wreak havoc on real estate prices,” added Soper. “Yes, values remain well above 2019 levels, yet a 30% rise in home values spread over five years, or 6% annually, is approaching long-term norms for Canadian residential property appreciation. The market has a way of correcting mistakes."
Pent-up demand
Soper expects that pent-up demand will drive sales once interest rates come down further. RLP is forecasting a 9% year-over-year increase in the national house price in the fourth quarter.
"Gradual interest rate reductions could unlock a housing supply logjam," he said. "Lower rates would not only empower buyers but also incentivize builders, who rely on borrowing for development. This is crucial to meet the diverse needs of our growing population. We need affordable options for first-time buyers, growing families, and downsizing retirees. Incremental rate adjustments are key to achieving a balanced and inclusive housing market. Without a significant supply boost, prices will continue to rise, impacting both those who seek home ownership and the one-third of Canadians in rental markets."
