Canada's housing market is seeing a glimmer of hope as sellers step back into the game, but buyers are still grappling with affordability challenges, according to Robert Hogue, assistant chief economist at RBC.
Hogue's recent report sheds light on the dynamics shaping Canada's real estate landscape. Despite a surge in new listings and inventory across major cities like Vancouver, Toronto, and Montreal, buyers remain cautious. Many sellers, who held off during the fall market, are now testing the waters again, hoping for better outcomes this spring. Some are driven by distress due to high interest rates.
However, buyers aren't rushing in to capitalize on the increased supply. Hogue notes a decline in home resale figures, signaling the ongoing struggle with affordability. The report indicates a slight uptick in home prices, but Hogue emphasizes that a robust recovery hinges on significant interest rate cuts, which he anticipates in the latter half of 2024.
The standoff between buyers and sellers is expected to persist, with new listings meeting restrained demand. Hogue forecasts a series of rate cuts by the Bank of Canada, starting in June and continuing into 2025. These measures aim to alleviate the pressure on buyers, who are facing unprecedented challenges in affording homes.
Hogue's analysis underscores the impact of high interest rates on household budgets. Affordability has dwindled significantly since 2022, shrinking the maximum budget for a median-income household by 22%. These constraints make it increasingly difficult for Canadians to enter the housing market, even with a substantial down payment and a standard amortization period.
As Canada navigates these challenges, the housing market's trajectory will largely depend on the interplay between interest rates, affordability, and buyer sentiment. Sellers may find themselves in a waiting game, hoping for a more favorable environment, while buyers tread cautiously amid uncertain economic conditions.
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