The Impact of Rate Cuts on Canada’s Housing Market in 2023 and Beyond
In 2023, despite the Bank of Canada’s series of rate cuts, the housing market remains sluggish. Experts attribute this stagnation to a complex interplay of factors including high home prices, mounting debt loads, diminishing savings, and economic uncertainty.
Phil Soper of Royal LePage notes that first-time buyers face a dilemma: whether to purchase now with easier variable rates or wait, anticipating further cuts. Meanwhile, David Doyle of Macquarie Group observes that the share of consumers expecting real estate prices to rise has dropped below previous levels, creating embedded tightening factors that could worsen in 2025 and 2026.
Sal Guatieri from Bank of Montreal highlights pent-up demand from buyers who have deferred purchases due to high borrowing costs. This demand, coupled with inflation’s current low rate, may lead to price hikes once the market rebounds.
Bob Porter reinforces these concerns, warning that inflation risks outpacing expected declines, which could hinder housing resales and discretionary spending.
Looking ahead, Bank of Montreal economists predict further rate relief in 2024, with potential for both 25-basis point cuts and possibly a larger step. However, experts caution against over-optimism about market recovery, emphasizing the need to address underlying issues like debt sustainability and affordability challenges.
In summary, while rate cuts offer some short-term relief, significant hurdles such as high prices and economic uncertainty likely prevent a full revival of the housing market. The focus will remain on balancing increased affordability with the risks of price appreciation driven by pent-up demand.
