Despite hope for lower interest rates in the months ahead, the Canadian Real Estate Association is scaling back expectations for home sales and prices after a slower-than-usual spring season.
CREA released an updated housing outlook on Friday that saw it revise down forecasts for both 2024 and 2025.
The organization now expected some 472,395 properties to change hands this year, a bump of 6.1 per cent from last year’s figures but below the anticipated 492,083 sales it called for in its previous forecast from April.
Home prices will end up at an average of $694,393 nationally, CREA said, an annual gain of 2.5 per cent. The organization’s earlier forecasts called for 4.9 per cent growth to an average price of $710,468.
CREA sees more recovery in the housing market in 2025 as interest rates are expected to decline, with 501,902 sales and an average price of $729,319. That’s also down from April’s expectations for 530,494 sales and an average price of $760,120 next year.
What’s changed from April to July is reduced optimism for the pace of interest rate easing from the Bank of Canada, which delivered its first rate cut of the cycle in June. Tiff Macklem, the governor of the central bank, has said that Canadians can expect a “gradual” pace of rate cuts going forward compared with the rapid rate hike cycle over the past two years.
Supply in the housing market has also built up as sellers come off the sidelines, CREA noted, but buyers remained hesitant through the spring.
“While lower interest rates are still expected to gradually bring buyers back into the market going forward, a slow spring market this year along with growing levels of supply has resulted in a downward revision to the forecast for both sales and average home prices,” the association said in a release.
In an updated forecast released Thursday, Royal LePage maintained its call for annual home prices growth of nine per cent in the fourth quarter of 2024, but CEO Phil Soper conceded to Global News that he expected “more of a reaction in the marketplace” to the Bank of Canada’s quarter-point rate cut.
The central bank’s next rate decision is set for July 24.
Re/Max Canada president Chris Alexander told Global News earlier this week that he expects there will need to be at least two more rate cuts before buyers come back in a meaningful way.
If the central bank delivers a rate cut later this month, he expects the fall housing season will kick off with a “really robust” September.
“So many cities and people are waiting for more favourable buying conditions, and it does, unfortunately, come down to interest rates,” Alexander says.
“We’re still at the mercy of the Bank of Canada at the end of the day.”
June sales, prices show 'signs of renewed life'
Canada’s housing market was starting to show “early signs of renewed life” by the end of the spring, CREA said in a separate release highlighting June sales figures. On a monthly basis, home sales activity was up 3.7 months from May, the association said.
The average, non-seasonally adjusted sale price for a home last month in Canada was $696,179, down 1.6 per cent year-over-year.
But CREA’s Home Price Index did tick higher by a tenth of a percentage point, which, while small, was the first hike in 11 months. The market tightened overall as sales outpaced new listings in the month.
“It wasn’t a ‘blow the doors off’ month by any means, but Canada’s housing numbers did perk up a bit on a month-over-month basis in June following the first Bank of Canada rate cut,” said CREA senior economist Shaun Cathcart.
Prairie provinces and Quebec are showing more signs of price appreciation amid competition for homes in those markets, while Canada’s most expensive cities, like Toronto, are facing unseasonably slow sales. Buyers in these markets have more choice with plenty of inventory on hand, CREA chair Jason Mabey said in a release.
Supply in June might have gotten a lift from changes made to capital gains taxes last month, TD Bank economist Rishi Sondhi suggested in a note to clients on Friday.
As part of its 2024 federal budget, the Liberal government in June raised the inclusion rate on capital gains realized above $250,000 in a year from one-half to two-thirds for individuals. While primary residences are excluded from capital gains, the changes do impact investors with secondary properties.
Sondhi said that listings may have seen a lift from investors rushing to offload their properties before the June 25 deadline when the changes took effect, but he added that “unfortunately, data gaps preclude a definitive statement on the matter.”
BMO senior economist Robert Kavcic said in a note to clients that, despite a single rate cut from the Bank of Canada, housing activity “remained subdued” in June.
Fixed-rate mortgages, which respond only indirectly to the central bank’s rate moves, are already lower than the more closely correlated variable mortgages, he noted. With few borrowers out there currently taking the variable route, “these early rate cuts aren’t having a big impact,” Kavcic said.
In the absence of meaningful rate cuts to restore affordability in the most expensive markets, buyers are moving to where ownership is more attainable, which Kavcic says is driving activity and prices higher in cities such as Calgary, Edmonton, Regina and Winnipeg.
While many buyers in the market today have been able to secure fixed-rate mortgages below the five-percent bar, Soper told Global News that rates on offer will have to start floating in the range of 4.0-4.5 per cent before buyers are confident enough to seriously test the market.
“It probably will take an additional couple of rate cuts of that magnitude to start to make a real difference,” he said earlier this week.
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