Canadians Could Be Gearing Up to Enter the Housing Market Again
Some Canadians who’ve been sitting on the sidelines of the housing market in the face of high prices and interest rates might be getting ready to jump back in, new research suggests. Home-buying intentions appear to be rising, according to the latest consumer pulse report released this morning from Dye & Durham Corp. The survey of 1,001 Canadians found that one in 10 are looking to sell their home and buy something new within the next 12 months. That’s double the number of those who sold and bought a new house in the past year, Dye & Durham said.
First-time homebuyers’ intentions have also increased, with 8% intending to make the leap within the next year, compared to 4% who already purchased their first house this past year. The number of people planning to buy an investment property or vacation home is also up to 8%, compared to 4% who’ve pulled the trigger in the last 12 months.
That’s not to say Canadians aren’t worried about high interest rates. Indeed, 23% said they’d stay on the housing market sidelines until rates fall. Many continue to remain concerned about prices, too, with 24% saying they wouldn’t buy until home prices decline.
But as the Bank of Canada signals an end to months of aggressive interest rate hikes, Dye & Durham predicts “brighter days” ahead for the housing market. “As rates begin to hold — and eventually decline — we expect to see a significant upswing in areas like real estate transactions,” Martha Vallance, chief operating officer of Dye & Durham, said.
Still, high interest rates are squeezing Canadians’ wallets. Most people report having to spend more on groceries, gas and car and home insurance in the past year, and piggy banks are getting hit. More than half of those surveyed say they’ve had to quit allocating money to personal savings, while 45% have abandoned emergency savings. Retirement savings are also being put on ice, with 35% saying they’ve had to stop contributing to their registered retirement savings plans (RRSPs). 39% also say they’re worse off financially this year than last.
That could be contributing to an overall sense of pessimism about the Canadian economy. The survey said more than half expect the country to enter a recession in 2023, while 32% think we’re already in one.
Economists appear to be much more optimistic, however, and think Canada will likely avoid a recession, according to Bloomberg’s latest economist survey. The economy is expected to grow 0.3% in the last part of 2023 — higher than the zero growth predicted in the August survey. And things will only pick up from there, economists say, with growth building in 2024.
Source: Financial Post
Why the Bank of Canada Pause Won’t Save the Housing Market This Time
Canada’s housing correction is back.
Home sales fell 4.1% in August — the second monthly decline in a row and the fastest drop since the Bank of Canada started raising interest rates in 2022, says Desjardins. This spring when the central bank first paused rate increases the housing market sprang back to life with a vigour that surprised economists.Two more rate hikes in June and July put a damper on that rally, but in September the Bank paused again. Can we expect to see another bounce in the housing market?
Don’t count on it, says BMO senior economist Robert Kavcic, because this time “the headwinds are stiffer than they were the last time the Bank of Canada stepped aside… The Bank of Canada’s September 6th pause will help market psychology, and we wouldn’t fully write off this market given underlying demographic demand, but there are a few reasons why this pause might not provide the same burst it did in the spring,” he wrote in note.
For one thing, sellers are coming back to the market, something that was missing in the spring. In March new listings were the lowest since 2003, because “homeowners didn’t want to, or have to, sell into a down market,” said Kavcic. Now new listings are surging back to historic norms, up 5.5% in August from 2022, and there’s a record number of homes under construction that will make their way onto the market, he said.
Pressure to sell will also mount as more mortgages come up for renewal. In its financial system review earlier this year, the Bank of Canada highlighted concerns about the ability of households to service their debt when mortgages are renewed at much higher rates, with some facing payment increases of up to 40%. And this time there is no mortgage rate relief on the horizon, said Kavcic.
In the spring, the market expected a recession and was pricing in rate cuts in the second half of 2023. As bond yields dropped, shorter-term fixed-mortgage rates fell below 5%. Now yields are high and the Bank’s hawkish hold in September is keeping the market from rallying, leaving the lowest available mortgage rate today about 100 basis points higher than the lowest in the spring, he said.
Then there is the economy. The job market has weakened in recent months with the unemployment rate up 0.6 percentage points from last year’s lows and job vacancies down 230,000 from a year ago. “This is not yet a ‘soft’ job market by any means, and wage growth is still sturdy, but there might be a little fraying around the edges,” said Kavcic.
Oxford Economics believes the housing correction will extend into 2024 as the economy falls into recession. “Mounting job losses and increased income insecurity will combine with higher mortgage rates to weaken demand for housing and likely lead to a greater number of stressed home sales,” said Oxford economist Tony Stillo.
The average home price (seasonally adjusted) fell 2.3% in August from the month before, and has now fallen 5.2% over the past three months, erasing much of the spring rebound, he said.
Oxford expects home prices will fall another 5% to 10% by the middle of 2024, taking the overall decline from the market’s 2022 peak to between 20% and 25%.
RBC economists also expect cooling to last through the fall as higher interest rates, affordability challenges and a “looming recession” throw up obstacles. “Any material acceleration in the recovery will have to wait until interest rates come down in 2024,” said RBC assistant chief economist Robert Hogue.
Source: Financial Post
Canadians Willing to Sacrifice Financial Security for Homeownership
High mortgage rates and rising inflation haven’t discouraged Canadians from their homeownership dreams, according to a new report by real estate marketplace Zolo. The study, which interviewed 800 homeowners who bought homes in the past four years, found that Canadians are willing to sacrifice their financial security for a place to call their own. In fact, 93% said competitive property markets and rising interest rates actually influenced their decisions to buy, and another 43% said they wanted to purchase a property before prices increased further.
That doesn’t mean their finances aren’t affected by current economic conditions: 92% indicated that inflation at least somewhat hurts their ability to afford their home. For 30% of respondents, finances are so tight that they have little room for extras, while 10% are unable to meet basic needs. What’s interesting is that despite this, 45% said they would still be content with their properties if there was another interest rate increase before the end of 2023.
But economic challenges aren’t the only things eating into homeowners’ budgets. A separate report by home improvement company HomeStars, which interviewed 1,105 homeowners who completed a renovation or repair in the past year, found that a third did weather-related emergency repairs, spending an average of $12,300 in the past 12 months. That number peaks at 41% in Atlantic Canada, where excessive rain caused catastrophic flooding on the East Coast in July.
A majority (79%) of Canadians said they had cash on hand to pay for renovations. Their outlook continues to remain optimistic for the year ahead.
Nearly three-quarters of homeowners are planning to do at least one renovation in the next 12 months. Anticipated spending is expected to come down to $10,264 on average, but only a third are planning on postponing planned renovations due to increasing interest rates.
“We are seeing quite a few new and emerging trends in 2023 — from weather-related emergency repairs to the future of multi-generational living,” Shir Magen, chief executive of HomeStars, said in a press release. “While overall spending is down from [2022], due to inflation and rising interest rates, the majority of homeowners surveyed are still planning to renovate.”
The report also found that more Canadians are buying newer or previously renovated homes this year, with only 28% buying a fixer-upper compared to 44% in 2022. Looking ahead, a quarter of them are expecting to live in a multigenerational household in the next 10 years.
Source: Financial Post
