Canadian Housing Market: Can Lower Interest Rates Help First-Time Homebuyers?
By Condos HQ - Sep 04,2024
A major shift in the economic landscape has occurred with the Bank of Canada’s recent decision to cut interest rates. Being the first G7 nation to do so, Canada is indicating a tactical change intended to reduce consumer financial strain and promote economic expansion. This might offer investors a chance to re-enter the investment market. Let’s examine the effects of these reductions in more detail and forecast potential trends.
Analyzing the Impact of Recent Interest Rate Reductions
Early predictions stating that Canada’s struggling housing market will experience a recovery, now that the Bank of Canada has cut interest rates, could not be further from reality. According to recent reports from local real estate boards, home resales declined again in certain markets, including Vancouver, Calgary and Toronto, following a slight uptick in May and June. Still things in Edmonton and Montreal started to pick up a little. Significantly lowering ownership costs and increasing demand from homebuyers will require larger rate reductions.
On the other hand, supply never stops growing. It reflects the completion of many newly built units (mostly condos) that owners (mostly investors) are looking to offload in certain cases such as in Toronto. In other instances, sellers might bet that offering lower prices will pique buyer interest and result in better sale outcomes. For some, it could indicate that they are distressed as a result of the high rates.
What do the Numbers Entail?
Despite the Bank of Canada’s quarter-point cut on June 5, marking the first decline in four years, sales data from local real estate boards released this past week indicate that there was not much of an uptick in home sales last month.
According to the Toronto Regional Real Estate Boards (TRREB) monthly report which revealed a decline in June home sales year over year, many buyers decided to postpone buying a property despite the slashed interest rates. The Greater Vancouver Real Estate Board confirmed in a study showing that buyer reluctance persisted in June and that home sales in the metropolitan west area remained below seasonal levels.
Sentiments of Prospective Homebuyers After Interest Rate Reductions
Views of the Canadian housing market as a whole appear to have been little affected by the rate cut. According to a recent survey 73% of Canadians think the rate cut will have little to no impact on the overall housing market, while 72% think it won’t have a significant impact on the affordability of large purchases like homes.
As compared to younger Canadians, adults 60 years of age and older express this sentiment significantly more strongly. That is 88 percent of Canadians of age 60 and above think the rate cut will not have a significant effect on the affordability of purchases and those same individuals think it won’t have a significant effect on the housing market.
In general, only 35% of Canadians anticipate that the rate cut will have an impact on the housing market, whereas 46% anticipate no change in home sales. Those under the age of thirty-nine (44%) anticipate higher market activity than adults sixty and older (26%) do. This indicates that the younger population is more optimistic than older generations.
Furthermore, a sizable percentage of Canadians (61%) believe that there will be no changes in the quantity of homes sold whereas 33% believe that the rate reduction will encourage a rise in home sales.
These results highlight Canada’s cautious attitude towards the possible impacts of the rate cut on affordability and housing market dynamics.
The Decision to Buy or Sell a Home: Let’s Cut to The Chase!
As a result of the rate cut, only 10% of Canadians intend to buy a home faster and 21% want to wait until there are more rate cuts. These numbers are in line with recent reports that indicate the first rate cut had little effect on the Canadian housing market. Additionally, 69% of respondents said the rate decrease had no bearing on when they intended to make their purchase.
In terms of selling decisions, only 11% of Canadians are selling because of the rate reduction and 12% plan to hold off on selling until there are further rate reductions. The great majority (76%) claim that their decision regarding when to sell was unaffected by the rate reduction.
Predicting the Dynamics of the Summer Housing Market
If buyers believe that home prices will rise in the future, there will likely be more sales in the summer real estate market. Prospective buyers might feel pressured by this expectation to act quickly before prices increase even more. So even slight rate reductions will have an immediate effect on sales volume.
Since most families wish to move during the summer break, this period is typically the busiest for real estate transactions. The recent decrease in interest rates may lead to a rise in sales activity, which would exacerbate this seasonal trend. In order to evaluate the impact of the rate decrease real estate brokers and market analysts should closely monitor key performance indicators such as the quantity of new listings days on market and the percentage of sale price to listing price.
Conclusion
While the debate rages on among real estate experts, it is hard to disagree that interest rates and the dynamics of the Canadian housing market are inextricably linked. A modest decrease in interest rates has the ability to impact buyer and seller financial calculations which could result in higher sales volumes. As we approach the summer months, it will be important to observe how these dynamics develop and what they mean for the Canadian economy as a whole.
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