Optimism for rate cuts spurs sales, but economists warn of a short-lived rebound
Economists interpret Canada's recent surge in housing sales as optimism for lower interest rates but warn the market rebound may be "short-lived," according to a BNN Bloomberg article.
The Canadian Real Estate Association's latest figures show a significant uptick, with home sales for January soaring by 22 percent year-over-year, marking the most substantial gain since 2021.
Daren King, a senior wealth advisor and portfolio manager at National Bank Financial, attributes this rebound to a recent decrease in fixed mortgage rates.
“Furthermore, the stabilization of the Bank of Canada’s policy rate and the anticipation of an easing of monetary policy in 2024 have probably motivated some buyers to take action,” he detailed in a Wednesday report.
King also noted a shift in seller sentiment, pointing out, “the proportion of listings cancelled during the month edged down, indicating that sellers are regaining some confidence in the current market.”
This sentiment is mirrored by Marc Desormeaux, a principal economist at Desjardins, who observed that Canadians' belief in forthcoming interest rate cuts is evident in their housing market activities.
He explained, “Homebuyers may be responding to the reduction in bond rates seen earlier this year, which primarily reflected market bets that central bank policy rate cuts could come down in the months ahead.”
Looking ahead, both economists express caution. King predicts the housing market's revival could be brief, hindered by “persistent affordability problems and the current slowdown in the labour market.” Despite this, he acknowledges that “strong population growth” may fuel continued activity into the spring.
Desormeaux is slightly more optimistic about the future of home sales, suggesting “generally tightening supply-demand balances across multiple major markets suggest stronger gains could be coming.”
Meanwhile, Clay Jarvis, a real estate financial expert with NerdWallet Canada, anticipates a bustling spring season for home sales. He advises, "If five-year fixed rates stay comfortably below five per cent, buyers can expect a competitive spring market."
Jarvis recommends that anyone considering a home purchase in the first half of 2024 should get pre-approved before the market heats up.
This collective outlook from economists suggests a cautious optimism in the face of potential rate cuts, sparking a temporary boost in Canada's housing market, albeit with underlying economic challenges that may limit the duration of this rebound.
