Buyers remain cautious as rate cuts fail to boost demand, with first-time buyers and investors holding off
The Royal LePage House Price Survey revealed that the aggregate price of a home in Canada increased 1.6 percent year over year to $815,500 in the third quarter of 2024.
However, on a quarter-over-quarter basis, the national aggregate home price dropped 1.1 percent, reflecting slower activity in many markets during the summer.
By September, sales volumes had begun to pick up, and 38 percent of regional markets reported price increases compared to the previous quarter.
“Despite three cuts to the Bank of Canada’s overnight lending rate, buyer demand nationally remains weak, particularly among two key groups: first-time homebuyers and small investors,” said Phil Soper, president, and CEO of Royal LePage.
First-time buyers, more sensitive to interest rate changes, have adopted a cautious approach, waiting to make purchases. Meanwhile, small investors who buy condominiums to rent out are also hesitant, as carrying costs now exceed rental income.
Soper explained that “the current flat prices do not justify many investments,” but predicted that both groups will return to the market as property values rise.
Royal LePage's website, Canada's most visited real estate site, recorded a 19 percent year-over-year increase in listings in September. According to Soper, “existing homeowners are ready to move,” and the current market offers more choice and less competition for buyers.
When broken down by housing type, the national median price of a single-family detached home rose 2 percent year over year to $850,400, while the median price of a condominium increased 0.5 percent to $590,200.
On a quarter-over-quarter basis, both single-family detached homes and condominiums experienced slight declines of 1.2 percent and 1.1 percent, respectively.
Soper believes that the Bank of Canada’s anticipated rate cuts later this year could spur more buyers and investors to enter the market. He expects home prices to rise faster, erasing the benefits of waiting for first-time buyers and making investments more attractive for small investors.
New lending regulations, set to take effect on December 15, will allow first-time buyers and purchasers of new construction homes to obtain insured mortgages with a 30-year amortization period. The insured mortgage cap will also increase from $1m to $1.5m.
Additionally, starting on November 21, the Office of the Superintendent of Financial Institutions (OSFI) will remove the mortgage stress test for uninsured borrowers switching lenders upon renewal, provided they maintain the same loan amount and amortization schedule.
“These changes will have more impact on the early 2025 market than many anticipate,” Soper noted, predicting a significant increase in activity.
He also said raising the insured mortgage cap will create opportunities for move-up buyers in higher-priced markets, which will free up more inventory for first-time buyers.
A Royal LePage survey conducted by Hill & Knowlton found that 84 percent of Canadians aged 18 to 38 still consider home ownership a worthwhile investment.
Of those who do not currently own a home, 75 percent plan to purchase a property, with nearly half aiming to do so within the next five to ten years. Soper acknowledged that young buyers face obstacles, but they remain optimistic about achieving homeownership.
The Conference Board of Canada’s September report showed that consumer confidence increased by 3.3 percent over the previous month, reaching its highest level in over a year. The number of Canadians who believe now is a good time to make major purchases also rose.
Although interest rates are declining, many Canadians with fixed-rate mortgages from the ultra-low borrowing period before March 2022 are seeing higher monthly payments when renewing their loans.
Soper stated, “The Bank of Canada will not be able to cut rates quickly or deeply enough to take away all of the renewal pain for those still on pandemic-era, low-rate mortgages.”
He added that while some families might relocate to more affordable areas, most Canadians are well-positioned to handle the increased costs, thanks to strict lending practices.
The Bank of Canada’s current key lending rate is 4.25 percent, and further cuts are expected as the central bank aims to balance economic growth with the risk of inflating shelter prices. The next rate announcement is scheduled for October 23.
Recovery trends in the real estate market vary across the country. Toronto and Vancouver, which saw extreme highs and lows during the pandemic-era boom, are currently lagging behind in recovery.
In contrast, Quebec and Prairie markets have shown more resilience during the period of high interest rates.
Soper noted that affordability issues in Toronto and Vancouver continue to drive migration to other regions, while Alberta has experienced population growth, particularly from inter-provincial migration. Conversely, gains in Atlantic Canada have slowed since the pandemic-driven rush.
