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Economists say potential rate cuts spurring housing market rebound that could be 'short lived'

The recent surge in Canada's housing market is indicative of a growing optimism among Canadians, who are eyeing potential interest rate cuts in the near future. However, economists caution that this rebound might be short-lived.

In January, home sales experienced a remarkable 22% year-over-year increase, marking the most significant gain since 2021, as reported by the Canadian Real Estate Association. Daren King, a senior wealth advisor and portfolio manager at National Bank Financial, attributes this surge to the concurrent decline in fixed mortgage rates.

King, in a Wednesday report, pointed out that the stability of the Bank of Canada's policy rate, coupled with the anticipation of monetary policy easing in 2024, likely prompted buyers to make their moves. The optimism extends to homeowners, as evidenced by a decrease in the proportion of listings canceled during the month, signaling increased seller confidence in the current market.

Marc Desormeaux, a principal economist with Desjardins, concurs with this sentiment, highlighting that the housing numbers reflect Canadians' belief that interest rates are poised to decrease. According to Desormeaux, the response from homebuyers could be linked to the earlier reduction in bond rates, driven by market expectations of central bank policy rate cuts in the coming months.

Looking ahead, Daren King suggests that the housing rebound may have a limited duration, potentially lasting only a few months. He cites persistent affordability challenges and the ongoing labor market slowdown as significant headwinds that Canadians still face on the path to homeownership. Desormeaux, on the other hand, anticipates further improvement in home sales numbers, indicating that tightening supply-demand balances across major markets could lead to more substantial gains.

Clay Jarvis, a real estate financial expert with NerdWallet Canada, adds his perspective, forecasting a busy spring for home sales. Jarvis believes that if five-year fixed rates remain below five percent, a competitive spring market is likely. He advises potential homebuyers to consider getting pre-approved before the market gains momentum in the first half of 2024.

In summary, while the recent surge in Canada's housing market is fueled by optimism surrounding potential interest rate cuts, economists warn that challenges such as affordability issues and a slowing labor market could curtail the longevity of this rebound. As Canadians navigate these uncertainties, the real estate landscape appears poised for a dynamic and potentially competitive spring market in the months ahead.



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