Why Canadian Homebuyers Are Staying on the Sidelines June 20, 2024

Would-be Homebuyers Are Staying on the Sidelines in Canada: Here’s Why

New data from the Canadian Real Estate Association (CREA) shows that home sales in May 2024 fell by 5.9% compared to a year ago. Typically, the spring and summer months see a boom in the Canadian real estate market. However, higher interest rates are expected to “keep a lid on” sales volumes, putting “pressure on housing prices” and hindering market growth.

Why Buyers Are Hesitant

David Macdonald, a senior economist at the Canadian Centre for Policy Alternatives, notes that the impacts of higher interest rates are still being felt, despite a recent rate cut by the Bank of Canada. Many Canadians have yet to renew their mortgages at these higher rates, which continues to suppress market activity. Even with the recent rate cut, renewals are still significantly higher than initial rates, maintaining low sales volumes.

Supply Challenges

The Canada Mortgage and Housing Corporation (CMHC) reported a 10% increase in the annual pace of housing starts in May compared to April. However, higher interest rates have negatively impacted new construction, particularly for single-family homes. While apartment construction remains stable due to government support, single-family residential investment has declined.

Future Outlook on Interest Rates

There is speculation that the Bank of Canada may implement at least one more rate cut in 2024. Macdonald suggests that while this could lead to an increase in sales volumes, it is unlikely to cause a surge in prices similar to the COVID-19 pandemic period. The cost of carrying a mortgage remains high compared to previous years, making a significant price increase less likely.

Relevant link: https://www.ctvnews.ca/business/would-be-homebuyers-are-still-staying-on-the-sidelines-in-canada-here-s-why-1.6930001