October home sales data could signify an inflection point for Canada’s housing market, according to two economists, who noted that lower borrowing costs seem to ‘finally’ be having an effect.
RBC Economists Robert Hogue and Rachel Battaglia said in a report Thursday that early data from local real estate boards “almost universally” showed large increases in home sales when compared to September. The report notes that gains were even larger on an annual basis.
“Interest rate cuts are finally boosting housing market activity in a visible way across Canada,” the report said.
Following the Bank of Canada’s move to lower its policy rate by 50 basis points to 3.75 per cent in October, some real estate experts predicted the rate cut could spur increased buying activity. However, some also predicted buyers could be awaiting the last rate decision of the year.
“It seems the 125 basis-point rate reduction the Bank of Canada has delivered to date is what many potential buyers had been waiting for to jump into the market,” the economists said in the report.
“The material rise in inventories this year is also no doubt a source of motivation, giving buyers more options to choose from.”
However, the economists highlighted that strong competition among sellers is containing price gains, noting that the MLS Home Price Index didn’t change much between September and October.
“October could mark an inflection point in Canada’s housing market recovery,” the economists said in the report.
“With significant additional rate relief on the way—we expect the BoC will slash its policy rate by another 50 bps in December, followed by five 25 bps (basis points) cuts spread over the first three quarters of next year—and mortgage insurance rules to be relaxed in December, momentum is likely to build some more.”
Going forward, the economists said the market could still face volatility amid difficult affordability conditions.