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If the Bank of Canada cuts interest rates, home sales should pick up, but the rally will be muted
Published on December 24, 2023 • Last updated 23 hours ago • 3 minutes reading time
If the Bank of Canada cuts interest rates, home sales should pick up, but the rally will be muted. Photo by Mike Hensen/The London Free Press/Postmedia Network
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After a turbulent 2023 full of surprises, inflation and interest rates will continue to determine the fate of the real estate market next year, say industry players.
John Pasalis, the founder of Realosophy Realty in Toronto, said they expected a sluggish market in 2023, but it didn't start out that way.
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“The market started aggressively, prices rose, then hit the brakes and fell,” he said in a recent interview with the Financial Post’s Larysa Harapyn. “And now we’re seeing the lowest single-family home sales volume on record in the Greater Toronto Area.”
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Steve Saretsky, owner of Vancouver real estate firm Saretsky Group, said the West Coast market also showed unexpected resilience earlier in the year but was not immune to the slowdown.
“We went into 2023 assuming that prices would continue to decline in the second half of 2022, and we saw some sort of crack there during the spring market,” Saretsky said.
Further rate hikes by the Bank of Canada in June and July put an end to this rally.
With central bankers now opening the door to possible interest rate cuts in 2024, Pasalis said he expects sales to rebound from recent lows, but his optimism remains cautious.
“It’s not going to be a booming market,” he said. “I think the market will be a little better… A lot of that depends on the outlook for inflation and interest rates. But if we move from five-year mortgages in the six range to five-year mortgages, that will obviously increase demand a little bit.”
As for the rental market, both Pasalis and Saretsky expect prices to moderate, causing affordability to plateau if not ease. They agree that rapid rent growth is no longer sustainable and that markets are adapting to local incomes.
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“How long can you sustain double-digit rent growth year after year?” Saretsky asked. “At some point, the cap on local incomes will be reached as the labor market begins to weaken, which is clearly the Bank of Canada’s goal.”
Regarding home buying trends, Pasalis said he has seen many people leaving Ontario and even the country due to high housing prices. In Toronto, where real estate prices are about 10 times household income, it is becoming increasingly difficult for many to justify the cost.
Saretsky said government policies aimed at expanding supply, such as lifting zoning regulations to encourage higher housing density around transit stations in British Columbia, will shape the market and neighborhoods in the coming years.
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Both experts said further government intervention was needed to address the housing shortage.
In particular, Saretsky said it will be interesting to see how a plan to revive and update Canada Mortgage and Housing Corp.'s wartime housing program unfolds. will be developed, with a catalog of pre-approved designs created to speed up construction.
“We have this ongoing argument about who is responsible for what, and it seems like we are now taking more action – not just at the federal level but at the provincial level as well,” he said.
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