Is the end in sight for Canada’s mortgage market lull?

The national housing market may have slowed in July – but overall prospects are continuing to brighten in the wake of the Bank of Canada’s decision to start cutting interest rates.

While sales activity came in slightly lower than the previous month, slipping by 0.7%, Canadian Real Estate Association (CREA) senior economist Shaun Cathcart indicated it’s just a matter of time before the market begins to heat up again with further rate cuts on the horizon.

In remarks accompanying the release of CREA’s latest data, Cathcart described an uptick in activity heading into next year as a “slam dunk” thanks to the likelihood of the Bank of Canada continuing to bring rates lower.

Optimism on the borrower side is also clear, according to Alberta-based broker Len Lane (pictured top), owner of Brokers for Life in Edmonton. He told Canadian Mortgage Professional that the recent central bank cuts, and a drop in fixed mortgage rates, had helped spur some homebuyer confidence that the worst may already be behind. “There’s no question that every movement, we see a change in the market,” he said. “People are becoming more confident in the economy, at least in Alberta.”

The Bank’s decision to cut rates at last left borrowers on variable-rate mortgages, which are directly impacted by central bank rate movement, breathing a sigh of relief. Still, those consecutive 25-basis-point drops hadn’t proven sufficient to persuade many new buyers that a variable rate is the best option, according to Lane.

Five-year Government of Canada bond yields have ticked significantly downwards in recent weeks, meaning fixed rates remain the preferred solution for a majority of buyers. “As the fixed rates dropped over the last two weeks, we’re still seeing buyers look more for [those] rates,” Lane said. “Variable discounts have improved some, but not enough yet for the average person.”

Alberta market remains strong

With affordability having surged out of reach of many borrowers in the country’s priciest housing markets, Albertan cities including Calgary and Edmonton have seen renewed interest from many buyers in recent times.

Attention from outside the province remains strong, according to Lane, with plenty of Canadians moving to Alberta as several large projects come on stream. A TC pipeline increasing its activity in the oilsands has seen production ramp up – helping drive a seller’s market where listings are narrowing and homebuying interest remains strong.

In a recent report on the national housing market, Royal Bank of Canada (RBC) assistant chief economist Robert Hogue noted that while the Calgary, Edmonton, and – to some extent – Montreal markets were weighted heavily in favour of sellers, the opposite applies to Toronto, where buyers enjoy a slight advantage at present.

Calgary remained one of the only regional markets where home price growth was continuing at a decent clip, Hogue added, although he said gains had moderated – and flat prices trends were likely to persist “until larger rate cuts heat up demand more materially.”

Are would-be buyers returning to the housing market?

Scores of hopeful buyers stepped to the sidelines at the onset of rate hikes by the Bank of Canada in early 2022, with the central bank’s aggressive approach serving to squeeze budgets and significantly ramp up borrowing costs.

Lane said the Bank’s latest moves had helped bring some of those borrowers back into contention, with some more bullish about their purchasing prospects in the new environment. “We’ve seen a lot of buyers coming back to the markets that didn’t qualify before,” he said. “It’s easier to qualify at 6.5% [the stress tested rate] than when that number was closer to 8%.”

CREA’s news release accompanying the latest national sales figures suggested that an end to the prolonged sluggishness of Canada’s housing market was in sight.

The association’s chair, James Mabey, said the “stage is increasingly being set” for a busier market looking forward. “At this point, many markets have a healthier amount of choice for buyers than has been the case in recent years,” he said, “but the days of the slower and more relaxed house hunting experience may be somewhat numbered.”

Source CMP
By Fergal McAlinden