The head of Royal LePage says there were “no surprises” after the latest figures from the Canadian Real Estate Association (CREA) showed the housing market was in a holding pattern in August.
On Monday the CREA said the number of homes sold in August fell 2.1 per cent compared to the same period a year earlier. Additionally, national home sales rose 1.3 per cent from July on a seasonally adjusted month-over-month basis.
“We’re in a period where the biggest cohort of buyers or transactors are sitting on the sideline because they’re more or less rational consumers, and that’s the first-time home buyer,” Phil Soper, the president and CEO of Royal LePage, said in an interview with BNNBloomberg.ca Monday.
“Typically in a post downturn or post-market correction period first-time home buyers form about 40 per cent of the transactions and if you look at what’s happened since the central bank started lowering the target rate…they have benefited every five or six weeks from a cut in their carrying costs.”
He notes that first-time buyers don’t have equity from another property and typically just have a relatively small down payment.
“So they have high loan-to-value mortgages and monthly caring costs are what really matters to them, that monthly mortgage payment, and it’s been getting smaller every five or six weeks because home prices are basically flat, they’re not going anywhere and there’s no incentive for them to get off the fence at this stage,” Soper said.
Earlier this month, the Bank of Canada cut its key policy rate by 25 basis points to 4.25 per cent, marking the third consecutive rate cut after two quarter-percentage-point cuts in June and July.
Clay Jarvis, a spokesperson and real estate financial expert at NerdWallet Canada, said in a statement to BNNBloomberg.ca Monday that August data from CREA shows home sales moved lower on an annual basis in areas with average prices over $600,000.
“That tells me Canadians in pricier markets are having trouble qualifying for larger mortgages with rates and home prices at their current levels. Cities like Toronto, Vancouver or Calgary will all likely see further sales decreases, which will put a damper on national real estate activity this fall,” he said.
Going forward into the fall, Soper said he expects to see “more of the same” with a gradual, but lower than normal, increase in home prices.
“It’s not until home prices start rising at a clip that surpasses the benefit of another quarter-point cut in the bank rate or until the bank stops lowering interest rates that there’d be any incentive for them (first-time buyers) to move,” Soper said.
However, he highlighted that things are likely to change in the spring of 2025 based on certain factors.
“It’s three things. One: borrowing cost to get lower…and we probably will see at least 50 basis points, maybe 75 by that time and that’ll have moved things down a full percentage point and a half,” Soper said.
Secondly, he said an influx of new Canadians will lead to pent-up demand and lastly he said seasonality will change the “trajectory of home price appreciation and it may actually get uncomfortably high quickly.”
With files from The Canadian Press
