After a stretch of soaring prices and little-to-no home supply, the tides could soon turn for Canada’s real estate market.
In a recent housing market report, RBC Economics’ assistant chief economist, Robert Hogue, stated that an influx of sellers on the market “could mark a turning point toward more balanced demand-supply conditions later this year.”
Following a period of low supply growth, homebuyers finally saw some relief as more homes came online last month. Rising interest rates as a result of the Bank of Canada’s ongoing hike cycle will also help the real estate market find its footing.
“To be sure, even more sellers will need to list their properties to rebalance Canada’s housing market,” said Hogue. “But we expect rising interest rates will help the process by cooling the demand side.”
Rising rates and policy changes could initiate a slowdown
Interest rates have been at record lows since the BoC made a handful of cuts to the overnight rate back in March 2020, as economies grappled with the onset of the pandemic. Now having raised the rate this month for the first time in years, the BoC is likely to make more increases, Hogue says.
The report anticipates that there will be five additional hikes, boosting the BoC’s policy rate 150 basis points by mid-2023. Higher borrowing costs, in time, are expected to dampen homebuyer demand.
New policy measures at the political level will also likely be a factor in play further into the future.
“The likelihood of new housing policy measures targeting speculators, at the margin, could further cool demand,” said Hogue. “The federal government is widely expected to introduce new housing initiatives to address housing affordability issues in its spring budget. The details (including timing) will be key to assess the market impact.”
Housing market — finally — sees more listings
New property listings hitting the market are on the rise, a welcome sign for hopeful purchasers.
New homes listed for sale rose 24 per cent from January to February, a key that helped “unlock some unmet demand in the market.” New listings increased to historically high levels in areas within British Columbia, Alberta and Ontario.
Hogue pointed out that the Omicron wave possibly held back sellers as COVID-19 restrictions came back into effect in late 2021. Having seen those same limitations start to be lifted last month, some home sellers are likely taking the plunge now.
“Despite their higher numbers in February, sellers continue to be in a widely favourable position with scarce inventories persisting across the country,” said Hogue.
While property resales grew 4.6 per cent monthly in February to 699,000 units, the boost in new listings didn’t make much of a difference in prices as the national composite MLS Home Price Index increased the most on record, up 3.5 per cent in one month and 29.2 per cent compared to 2021.
“Nonetheless, we see the arrival of more sellers on the market as a positive sign,” said Hogue.
