The Bank of Canada held its benchmark rate of interest regular on Wednesday — a call real estate players and economists say could have major implications for the Canadian housing market.
In spite of everything, most market watchers point to the central bank’s aggressive rate of interest hikes over the past 12 months as driving the slowdown from the pandemic-era highs seen a 12 months ago to the calmer real estate waters seen in lots of cities across Canada today.
The choice to carry rates of interest regular could mean the underside of the housing correction is in sight, experts say — however the uncertainty of future rate hikes still looms over prospective buyers and sellers.
Here’s what to know.
Even before the Bank of Canada formalized its decision to pause rate changes on Wednesday — all of it but telegraphed the move after a quarter-point hike in late January — some housing markets within the country were already showing signs of life following the pronounced downturn in 2022.
In Toronto, while home sales and costs alike were markedly down from a 12 months earlier in February, each figures saw an uptick from January, in keeping with the local real estate board.
Pritesh Parekh, a realtor with Century 21 in Toronto, says he’s seen clients “definitely hitting the gas” ever for the reason that January rate hike and signals for a pause began.
With Wednesday’s rate hold coming to fruition, he sees that trend continuing no less than through March.
Parekh says that amongst his peers in Toronto real estate, there’s debate about whether the rise in activity is a “blip” or if the housing market downturn has truly bottomed out ahead of a spring resurgence.
“There are people on either side of the fence,” he says. “I’m expecting a boom, if I needed to guess immediately.”
Phil Soper, the CEO of brokerage Royal LePage, tells Global News that while the actual volume of sales and costs may be lower than recent years, Canada’s housing market might be seeing the return of seasonal patterns after a slower December and January gave approach to an uptick in activity last month.
The Bank of Canada’s rate hold affirms this return to seasonality, he argues, with the trail now clear to the traditionally busy spring market. Buyers and sellers must have more confidence that prices might be steadier without additional rate hikes to depress home values, he says.
“In other words, we’ve reached the underside of the cycle and it’s uphill from here,” Soper says.
The Bank of Canada didn’t provide such certainty in its messaging on Wednesday, nevertheless.
The central bank maintained the wait-and-see stance for its policy rate and left the door open to additional rate increases in 2023 if there are additional economic shocks that knock its inflation forecast off-kilter.
Soper acknowledged that the prospect of additional rate of interest hikes from the U.S. Federal Reserve, which could put pressure on the Bank of Canada to boost its own rate to maintain pace and rally the Canadian dollar, is one significant upside risk that he’s watching. Multiple big bank economists in Canada reacting to the central bank’s hold on Wednesday echoed those concerns.
“It does remain one in every of the murky areas as we glance ahead,” Soper says.
While Ratehub co-CEO James Laird agreed that Wednesday’s rate hold provides a bit “more certainty” for buyers wondering about what sorts of mortgage rates they’ll get this spring, he tells Global News that any fogginess in the speed path will are inclined to depress housing market activity.
“The more stability there’s from a mortgage rate perspective, the stronger a foundation the housing market could have,” he says. “People really don’t like uncertainty, and when there’s uncertainty from a rate perspective, they have a tendency to delay that purchasing decision.”
A Royal Bank of Canada forecast released earlier this week indicates that a bottom for the housing market might be in sight for “sometime this spring,” but assistant chief economist Robert Hogue also pinned that end result on having reached the height of rates of interest.
He noted that some markets resembling Ontario and Atlantic Canada might hit that bottom early, while the Prairies and Quebec could see their correction more drawn out.
Hogue said he expects the recovery phase might be slow as a weak economy holds back buyers, with a more robust return to the market set for 2024 when and if rates of interest begin to fall.
Parekh says that while he’s hearing from more clients thus far in 2023, it’s totally on the customer side, moderately than sellers.
Because of this, inventory stays constrained for the buyers emerging from the sidelines and competition is heating up in some parts of the market, he says.
Data from the Canadian Real Estate Association (CREA) shows that despite an uptick in latest property listings to begin the 12 months, housing stock remains to be “historically low.” January 2023 marked the bottom level for brand spanking new supply in that month since 2000, CREA said, though February figures have yet to be released.
Multiple-offer scenarios are popping up on some attractive properties in Toronto, Parekh says. It’s happening totally on well-staged homes in “desirable” neighbourhoods and moreso within the detached market than condos, from what he can see.
But when the sound of “bidding wars” is giving flashbacks of the pandemic highs when properties would see dozens of offers in a housing frenzy, Parekh cautions that today’s market isn’t even near that.
“If we’re comparing from one 12 months ago to today, 100 per cent there’s a difference,” he says.
Though the limited housing stock is pushing the present buyers towards the identical properties, he says lots of today’s buyers have a bit more patience and are even willing to connect conditions in multiple-offer scenarios.
“I’m seeing offers are available that may not be as ‘wild’ or ‘crazy’ as we’ve seen a 12 months ago, but they’re throwing their hat into the ring and seeing what comes out of it,” Parekh explains.
Soper says that for buyers testing the waters this spring, “affordability” will proceed to be a priority as still-high rates of interest push house hunters to cheaper options.
Because of this, he expects condos to outperform detached homes overall this 12 months, and that buyers priced out of the costliest markets will migrate to more cost-effective regions and cities resembling Calgary, Edmonton and Halifax.
Current inventory trends suggest that, in lots of markets, sellers might retain the upper hand this spring with limited options for buyers, Soper says.
“It is vitally much still a seller’s market just because there are fewer sellers on the market than you’d normally see during a spring market,” he says.
Parekh agrees that getting sellers off the sidelines might be key to the sorts of moves buyers could make within the months to return.
“If the spring market starts to return with more supply, I believe that might be a bit bit more helpful when it comes to how buyers can do something on this market,” he says.