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Homebuyers in Canada are so frenzied they won't wait for rates to go down



In Canada, prospective homebuyers are seizing the opportunity to dive back into the housing market, eager to stay ahead of a potential surge in demand triggered by anticipated rate cuts from the Bank of Canada. December witnessed an unexpected spike in sales, fostering speculation that the Canadian housing market may intensify further. The lingering softness in prices, coupled with the central bank's indication of halting benchmark rate increases, is prompting buyers to act swiftly to secure properties before rising competition escalates prices beyond reach.


A shift in market sentiment is evident, with Canadians expressing increased optimism about home prices, as revealed by a poll conducted by Nanos Research for Bloomberg. This positive outlook has enticed buyers like Maria Herrera, a 31-year-old manager in Vancouver, who recently re-entered the market with her husband to purchase a two-bedroom condo in the suburbs.


The real estate landscape has become increasingly challenging for house hunters, grappling with a scarcity of affordable properties exacerbated by record immigration. The shortfall in home construction, failing to meet the influx of approximately 1.8 million immigrants over the last year and a half, has intensified competition. Multiple offers and houses selling above asking price are becoming commonplace, signaling a renewed sense of urgency among buyers, according to Teia Eagar, a Toronto-based real estate agent.


The anticipation of the Bank of Canada's next move is palpable. While the policy rate remained steady in January, economists are projecting rate cuts to commence before the middle of the year, according to a Bloomberg survey. Traders are aligning with this expectation, betting on cuts shortly thereafter. A similar scenario last year led to a price rally, contributing to subsequent rate hikes to curb inflation.


The current expectations of rate cuts may already be influencing the market. Long-term bond yields have declined, impacting interest rates on fixed mortgages. Even floating-rate mortgages are gaining interest, with buyers like Herrera considering them in anticipation of overall savings once the central bank begins lowering its benchmark rate.


The prospect of rate cuts, slated for 2024, is generating excitement in the market, with mortgage brokers predicting a bustling spring market characterized by multiple offers in cities like Vancouver and Toronto. Strong wage growth, combined with a record influx of immigrants, is set to further bolster the housing market. Record-breaking immigration has already heated up the rental market, potentially translating into heightened competition in the for-sale market as the gap between rent and mortgage payments narrows.


While the federal government has announced initiatives to boost housing supply and placed restrictions on international student visas to manage demand, the effects of these changes may take years to materialize. The Bank of Canada has acknowledged the challenge of housing supply failing to keep pace with population growth, citing it as a driver of inflation beyond its immediate control.


In the face of these dynamics, the market appears poised for a resurgence, propelled by a combination of pent-up demand, rate cut expectations, strong wage growth, and a record influx of immigrants, setting the stage for an active and competitive housing landscape in the coming months.


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