Some long-unaffordable pockets of Canada’s housing market could open up to first-time homebuyers this fall as interest rates decline but experts expect prices will hold relatively flat.
Activity in the Canadian housing market has largely been muted through much of the spring and summer despite the start of rate cuts from the Bank of Canada, which delivered its third consecutive 25-basis-point drop on Wednesday.
Toronto-based realtor Pritesh Parekh tells Global News that while the summer is seasonally a slower time for home sales, he also believes the June and July rate cuts were not enough to change the narrative for buyers still boxed out of the housing market.
Declines in the central bank’s policy rate lower the bar of entry for would-be homebuyers, many of whom have been sidelined as they struggle to qualify for a mortgage to break into the ownership market.
“Now that we’re at the third consecutive rate cut this year alone, I think it’s something where more conversations are going to start for first-time buyers,” he says.
TD Bank economist Rishi Sondhi says that he’s expecting a “fairly healthy sales gain” in the fourth quarter of 2024, thanks in part to lower interest rates.
He notes that activity is still likely to lag behind the pre-pandemic pace as borrowing costs and home values are still elevated.
TD Bank joins other major lenders predicting the Bank of Canada will lower its policy rate to a resting point around 2.5 per cent in 2025.
Parekh notes that with growing confidence of a downward path for interest rates, there’s a tendency for buyers to hold out in hopes of securing the lowest rate or a bigger mortgage.
That could limit the number of buyers flooding back into the market this fall, even as others reach a point where borrowing costs fit with their homebuying plans.
“There will be a group of consumers who want to hold a little bit longer to try to take advantage of more cuts,” he explains. “And then there will be those who are just on the cusp, and this is going to be enough to tip them over to make the decision.”
An uptick in active buyers could intensify competition on properties in the market.
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Bank of Canada governor Tiff Macklem acknowledged this week that home prices could climb as the policy rate drops and conditions soften in the bond market, bringing down mortgage rates on offer.
“It wouldn’t be surprising if, as interest rates come down, as activity in the housing market strengthens, you see some pickup in housing prices,” he told reporters Wednesday.
Re/Max Canada published its fall housing market outlook on Tuesday calling for home prices to rise modestly through the end of the year in most Canadian cities.
The report expects price growth between one and six per cent in roughly three quarters of markets across Canada, as compared to the first quarter of 2024.
But some markets — particularly some of Ontario’s most expensive — are still projected to see price dips through the remainder of the year.
Re/Max forecasts a two per cent drop in the average Toronto-area home price through to the end of the year. The market has already seen values drop this summer, with the latest August housing figures released this week showing a 0.8 per cent annual decline in prices as well as a year-to-year slowdown in sales.
Christopher Alexander, president of Re/Max Canada, tells says he believes the recent rate cuts are “encouraging” more and more buyers to head back out into the market where supply is often outweighing demand.
“Most potential buyers have put their plans on hold for the better part of two years, and now they see that there’s an opportunity where there’s still a good amount of inventory and choice,” he says.
“Buyers have room to negotiate with sellers, especially in the condo market in Toronto. And I think we’re on our way to a much more healthy market state.”
While Parekh says that lower interest rates are likely to drive up prices in the long run, he’s less sure about how the next two or three months will go. With lower interest rates and a seasonal uptick in buyers expected, any movement on price will depend if the trend of rising listings continues and supply growth offsets demand.
Sondhi says he predicts housing affordability will improve into the fall but remain “strained” in most markets. Interest rates are still elevated even after a few cuts, and home prices have not receded much yet despite the slowdown in sales.
“We do see affordability improving, not just in the fall but going forward as rates come down. But we do think it’ll still remain near historic worsts,” he says.
Experts who spoke to Global News say the glut of condos currently up for sale in Toronto could be set for a price correction, marking an opportunity for first-time buyers this fall.
Sondhi said in a report released Thursday that average prices in the “oversupplied” Toronto condo market have fallen five per cent since the third quarter of 2023.
He projects further value drops in mid-to-high single digits through early 2025 as new condo completions hit the market and declining rents push investors to list their properties. At the same time, a softening labour market could hold back buyers if households start to see broader hits to their income.
‘There’s too little demand chasing too much supply. When you tend to see that, you tend to see prices come down,” Sondhi says.
There are risks to that outlook, Sondhi adds. Investors could pull their condos off the market if they’re not securing the price they need, and buyers could prove more reactive to lower interest rates, rushing in to snap up listings.
Condos are the logical starting point for new buyers because they’re typically at the bottom of the market’s price ladder.
Alexander says he sees a “tremendous opportunity” for first-time buyers looking for condos in Vancouver and Toronto as borrowing costs and prices potentially fall at the same time.
But he also notes that those aren’t the only markets in Canada to break into the ownership market, and that conditions are expected to normalize in cities across the country this fall.
“There’s lots of incredible communities with great quality of life across Canada, in Ontario that aren’t Toronto, that aren’t Vancouver, where you can find a really good property for a reasonable price,” Alexander says.
— with files from Global News’ Anne Gaviola
