Canada’s housing market is set for a dynamic year in 2024, with the trajectory largely dictated by interest rates. The year is expected to be divided into two distinct halves, each presenting its own set of challenges and opportunities.
First Half: Slow Activity and Soft Prices
The early part of 2024 is likely to see continued sluggishness in activity and softer prices. This is primarily due to the Bank of Canada maintaining its policy rate at a two-decade high, making homeownership unattainable for many potential buyers. The market is expected to be characterized by limited buyer confidence and subdued demand.
Mid-Year Pivot: Rate Cuts and Increased Activity
A significant shift is anticipated mid-year, with expectations of rate cuts that could stimulate the market. Once confidence returns, there will be a surge in pent-up demand, potentially leading to a rapid uptick in activity. However, poor affordability conditions are expected to temper this recovery, making it a gradual process.
Late 2024 and Beyond: Gradual Recovery
The larger window of opportunity for buyers is likely to open only after interest rates have dropped materially, which is foreseen in the latter stages of 2024 or into 2025. This gradual recovery is expected to be more pronounced for first-time buyers who are more financially constrained.
Upside for Supply
Improving sales prospects are expected to attract more sellers to the market. Mortgage renewal payment shocks could also prompt owners to put their properties up for sale. This influx of sellers would help keep supply-demand conditions balanced and temper any excessive upward pressure on prices.
Regional Variances
The housing market in Canada varies considerably across provinces. British Columbia and Ontario continue to face challenges due to high homeownership costs, while other provinces like Alberta, Saskatchewan, Manitoba, and most of Atlantic Canada remain resilient. Alberta and Saskatchewan are already experiencing a market uptrend, setting them up for above-average resales growth.
Market Projections
Home resales in Canada are projected to rebound 9.2% year-over-year to 484,400 units in 2024, partially reversing the declines of the past two years. However, this would still fall short of pre-pandemic levels. The recovery is expected to strengthen in 2025, with a gain of 16%.
Price Outlook
The national RPS Home Price Index is forecasted to ease further by 1.0% in 2024, following a decline in 2023. The turnaround is expected to have a greater impact in 2025, with prices forecasted to rise. However, the national index is expected to remain below its 2022 peak throughout the projection horizon.
Challenges Ahead
The severe loss of affordability, coupled with looming mortgage renewal payment shocks, poses challenges for many Canadians. While the housing market is expected to recover gradually, the path to homeownership may only widen significantly once interest rates drop. The need for a robust supply response remains crucial to balancing the market in the long term.
Conclusion: Overall, 2024 promises to be a year of transition for Canada’s housing market, with interest rates continuing to play a pivotal role in shaping its direction.
