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Housing market to see 'gradual liftoff' in second half of 2024




Canada’s housing market is poised for a gradual recovery in the latter part of 2024, according to a recently released report by RBC Economics. The report indicates that the housing market's trajectory will be marked by two distinct phases, influenced primarily by changes in interest rates.


RBC's Assistant Chief Economist, Robert Hogue, highlighted the pivotal role of interest rates in shaping the housing market's fortunes in 2024. The report suggests that the initial half of the year will likely witness subdued activity and softer prices as the Bank of Canada maintains its policy rate. However, a mid-year shift towards rate cuts is anticipated to stimulate the market, potentially propelling a more robust recovery in the second half of the year.


Hogue stated, “Interest rates will continue to dictate the outcome of Canada’s housing market in 2024 with the first and second halves showing different pictures.” The report argues that months of elevated interest rates have generated pent-up demand for homeownership. As consumers regain confidence and potential rate cuts come into play, the housing market could experience a rapid escalation in activity during the summer months.


RBC's forecast suggests a reduction in the Bank of Canada's key interest rate from five percent to 4.75 percent in June, followed by an additional 25 basis-point drop to 4.5 percent in July. This expected rate adjustment is seen as a catalyst for reigniting the housing market.


Despite the optimistic outlook, the report cautions that ongoing affordability concerns will persist, acting as a counterforce to the market's recovery. The term "poor affordability conditions" is emphasized in the report as a significant hurdle that could slow down the pace of recovery and contribute to a "gradual liftoff."


The report highlights that the window of opportunity for buyers may only widen significantly after interest rates have seen substantial reductions, a development predicted for the latter stages of 2024 or even into 2025. This is particularly relevant for first-time buyers who may face greater financial constraints.


The prospect of improved sales conditions throughout the year is anticipated to attract more sellers into the market, addressing the supply and demand dynamics. Additionally, the report notes that mortgage renewal payment shocks could serve as a motivation for more property owners to list their homes for sale. Hogue emphasizes that inventories have been gradually rebuilding over the past few years, especially after reaching historic lows during the pandemic.


In summary, the RBC report suggests that the Canadian housing market is on the cusp of a gradual liftoff in the second half of 2024, driven by anticipated interest rate cuts. However, persistent affordability concerns remain a key factor that could temper the pace of recovery, with a more significant opportunity for buyers expected only after substantial reductions in interest rates.


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