An economist with TD Bank says he expects to see a significant increase in housing market activity from now until the end of the year as more buyers come off the sidelines in the wake of interest rate cuts by the Bank of Canada.
In an interview with BNN Bloomberg on Wednesday, Rishi Sondhi said that he expects homebuyers to jump back into the market in big numbers in the fourth quarter as lower rates improve affordability nationwide.
“In our latest forecast we put out in mid September, we had a fairly sizeable increase in quarter-on-quarter Canadian home sales in the fourth quarter of this year, reflecting the extent of the rate relief that we have in the system and additional relief that we’re expecting,” he said.
The Bank of Canada has lowered its trend-setting overnight rate by a quarter percentage point at each of its last three meetings.
Experts are predicting another cut when bank the bank meets again next week, and Tuesday’s favourable consumer price index (CPI) print has many expecting a “jumbo” 50-basis-point cut, including all but one of Canada’s largest banks, Bloomberg reported Tuesday.
Sondhi said a 50-basis-point cut would likely “hold some psychological meaning” for would-be buyers in addition to the tangible relief it would provide, leading to “a sizeable increase in activity” in the next few months.
‘Some movement happening’
While he expects the housing market to heat up in the coming months, Sondhi said the Bank of Canada’s most recent rate cuts haven’t spurred as much activity as would be expected based on previous rate-easing cycles.
“There is some movement happening as a result of lower interest rates, but probably less so than one would typically get given the extent of the rate relief,” he explained.
“We chalk it up to mainly that the U.S Federal Reserve and the Bank of Canada have really signalled that they’re going to be taking their policy rate even lower from where it is now, so we think that buyers are on the sidelines waiting for interest rates to come even lower before jumping in.”
Victor Tran, mortgage and real estate expert with RATESDOTCA, shares that sentiment, telling BNN Bloomberg in an emailed statement Wednesday that “buyers don’t want to catch a falling knife.”
“We’re heading for the bottom of the market, but we don’t know when it will be, and buyers are hesitant to move too soon and miss out on a lower rate before home prices begin to rise substantially,” he said.
Like Sondhi, Tran also predicts an increase in sales activity either late this year or in early 2025, which he said could revive home prices and “kick start a housing rush as buyers may consider that an indicator of the market turning.”
“They may want to make a move before they miss what they believe is their chance. They’ll want to know they got in at a time when prices and rates were low,” he said.
Sondhi noted that home prices have largely trended flat across Canada in the months since the Bank of Canada first cut rates in June, so those potential homebuyers who have decided to wait haven’t yet been penalized for their decision to do so.
Uneven price growth expected nationally
When it comes to the potential for growth in home values in the coming months, some areas are more primed for price increases than others, Sondhi said.
“We still think that the Prairies are poised for some pretty solid price growth moving forward… jurisdictions like Alberta are still seeing robust population growth and sales levels are quite elevated there,” he explained.
“We do think that Ontario and B.C. will lag a little bit with respect to price growth at least over sort of a longer-term horizon, say through the entirety of next year and 2026, and that’s really a function of a strained affordability backdrop.”
Sondhi said other areas like Quebec and the Atlantic provinces are likely to fall somewhere in between those two extremes, “supported by tight conditions in those markets.”
Mortgage rule changes
Two recently announced changes to mortgage regulations by the federal government are also expected to help spur increased sales activity in the near future, Sondhi said.
First-time homebuyers will soon be able to pay off a mortgage over a period of 30 years, up from the current maximum of 25 years, and homebuyers will also soon be able to take out insured mortgages for properties priced up to $1.5 million.
Sondhi said that while these measures will help make homeownership more affordable in theory, home prices will end up being higher than they would have been without those policies in place.
“It will definitely add a boost… particularly in the first half of next year. I do think a nuance worth pointing out is that prices will be higher than they would have been absent these policies. That implies an affordability erosion,” he said.
“That affordability erosion will eat into the benefit to sales and prices derived from these policies.”