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A buyers' market with no buyers': CIBC economist on housing market

In the wake of soaring mortgage costs, some Canadian home sellers are grappling with an unexpected challenge – a dearth of interested buyers. Benjamin Tal, deputy chief economist at CIBC World Markets, has characterized the current state of Canada's housing market as undergoing "a very healthy correction," with supply outstripping demand, creating a market that's seemingly favorable to buyers, yet paradoxically lacking interested parties.

Tal, in a recent television interview with BNN Bloomberg, emphasized the magnitude of the challenges facing Canada's housing market, stating that it is undergoing its "biggest test" since the 1991 recession. The crux of the issue lies in the juxtaposition of declining home sales and a simultaneous surge in property listings, creating what Tal aptly describes as "a buyers’ market with no buyers."

One factor that had previously sustained housing prices was the scarcity of listings, but this trend is now reversing. High-interest rates and additional costs are exerting pressure on homeowners, leading to an increase in listings and subsequently contributing to the shift in market dynamics.

According to Tal, the correction currently unfolding is a positive development. He pointed out that during the COVID-19 pandemic, housing prices surged by a staggering 45 percent, and what is currently observed is a "very healthy correction."

Looking ahead to 2024, James Laird, co-CEO of and president of CanWise mortgage lender, anticipates a modest increase in home prices. Laird cites strong immigration numbers and an expected decline in interest rates as key factors influencing this projection. The federal government's target of welcoming 485,000 newcomers in 2024 is expected to further stimulate housing demand.

However, the condominium market is taking the brunt of the current slowdown. Tal emphasized that investors are rapidly pulling out of the condo space, even as construction continues based on past demand levels. This misalignment between supply and demand is a recipe for a slowdown, especially in the condo sector.

Despite the current challenges, Tal issued a cautionary note about the potential long-term repercussions. The slowdown, if prolonged, could dissuade new construction projects, exacerbating Canada's housing supply shortage. This, in turn, could drive prices up again when demand returns in the future. Tal highlighted the risk, stating, "Two years from now when interest rates are lower and demand is there … the supply of new units will not be there," underscoring the cyclical nature of the housing market.

In conclusion, Canada's housing market is navigating uncharted waters, facing a confluence of factors that are reshaping its landscape. While the current scenario may seem bleak for sellers, economists like Tal suggest that the correction is a necessary step towards a more sustainable and balanced housing market in the long run.

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