People look at real estate window displays, Toronto, on Thursday, May 20, 2021. (Christopher Katsarov/The Globe and Mail)Christopher Katsarov/The Globe and Mail
As weak as housing affordability is right now, aspiring young buyers may never see better.
Mortgage rates have declined lately, and home prices are moving sideways on an average national basis. Short of a crash that sends prices reeling, this is what passes in Canada for a buying opportunity.
The question is how long this moment lasts. After the last set of national data on residential resale homes, the Canadian Real Estate Association jumped on expectations for lower interest rates and made this startlingly unequivocal prediction: “ … the forecast for a rekindling of Canadian housing activity going into 2025 has just gone from a layup to a slam dunk,” said Shaun Cathcart, CREA’s Senior Economist.
Other voices were more cautious, but there’s still a consensus that a housing rebound lies ahead. Anyone considering a first home should be mindful of this outlook. If housing rebounds with any enthusiasm, today’s market conditions just might be a generational opportunity to buy a home.
It’s maddening to have to say such a thing. In many big cities, houses are very far from affordable for first-time buyers without high incomes or high-income parents. Also, a lot of people feel terrible about their finances after years of high interest rates and inflation.
But Canada’s housing market has a few things going for it, starting with the religion-like belief that owning a house is a flat-out, no-question financial win. This has not been the case for those who bought at the market peak in 2021-22, but boomers and even Gen Xers have cleaned up on home equity in the past decade or more.
Falling interest rates are a direct support for housing. The July numbers for the resale market suggested rate cuts to date haven’t done much so far to revive housing, but mortgage rates have come down to the point where the currently popular three-year fixed rate mortgage can be had for as little as 4.5 per cent to 4.8 per cent. Five per cent mortgages for longer-term fixed rates are fading away.
Other supports for housing include population growth and the economy’s resilience so far in avoiding recession. A sampling of summary comments on the housing market in July:
– “We view July’s result as a speedbump on the way to a stronger second half showing for sales and prices amid a resilient economy, robust population growth and falling rates.” – TD’s Economist Rishi Sondhi.
– “We are still expecting a recovery in the resale market, but the July figures suggest that buyers are still hesitant.” – Scotia Bank’s economist Patrick Perrier.
– “ … we’ve been expressing our cautious optimism for a moderate recovery in the real estate market for several months now.” – National Bank Financial’s economist Daren King.
– “More interest rate cuts are likely to stimulate homebuyer demand across the country. But, we expect this will be gradual.” – RBC’s economist Rachel Battaglia.
As ever, the outlook for housing varies a lot between cities. The MLS Home Price Index showed Toronto and Vancouver were down 5 per cent and 0.8 per cent, respectively, on a year-over-year basis in July, while Calgary was up 8 per cent and Edmonton was up 7.2 per cent. Canada-wide, the index was down 3.9 per cent.
Today’s buying opportunity is based on modest price declines in some locations combined with falling mortgage rates. The overall improvement in affordability is modest, but at least it’s something. In a more robust housing market, it’s likely that demand from buyers would result in price gains that more than offset lower borrowing costs.
The sad reality of housing, if you’re priced out, is that there’s zero talk right now about worsening market conditions that drive prices lower. Still, if the economy falls into recession that feeds unemployment, a deeper housing correction is possible.
One more remote hope for better affordability is a flood of newly constructed homes. Housing starts in June were strong, but analysts question whether the momentum will last.
For now, the consensus outlook is for housing to coast for a while. If mortgage rates keep falling and prices hold the line or fall, we may not see a better entry point for housing for years to come.
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