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Sellers re-entering the housing market, buyers continue to be constrained

Canada's major housing markets are beginning to show signs of recovery, but a full rebound is unlikely until interest rates drop significantly, according to Robert Hogue, assistant chief economist at RBC. In a report released Tuesday, Hogue noted that while sellers have started re-entering the market this spring, affordability issues continue to burden buyers.

Local real estate boards in Vancouver, Toronto, and Montreal reported sharp increases in new listings and inventory in April. Hogue attributes this to a mix of sellers, including those who skipped the fall market when demand and prices were down, hoping for better conditions this spring. Some sellers might also be under financial strain due to high interest rates, the report suggested.

Despite the influx of new listings, home resale figures for March and April remained low in most major markets, indicating that buyers are not taking advantage of the increased supply. "High rates and poor affordability clearly continue to weigh heavily on buyers," Hogue said. "We expect such pressure to persist until several rate cuts have been implemented."

Home prices have "picked up slightly" across Canada's major markets, with Toronto's MLS Home Price Index rising for the third consecutive month, though at a slowing pace. Hogue believes a robust recovery won't occur until interest rates fall significantly, predicting this might happen in the second half of 2024.

In March, Hogue forecasted a "standoff" between buyers and sellers as new listings would meet with constrained buyers. He anticipates the Bank of Canada to begin lowering rates in June, followed by 100 basis points of cuts in the latter half of the year, and another 100 basis points into 2025.

Prospective buyers face peak unaffordability due to high interest rates and home prices. Hogue highlighted that the maximum budget for a median-income household ($85,400 at the end of 2023) has shrunk by 22% since early 2022, assuming a 20% down payment and a 25-year mortgage. This leaves many Canadians struggling with the "toughest time ever to afford a home," he said.



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