Canada’s home prices to rise again on stretched demand-supply gap
Mortgage rates have fallen slightly over the past few months on expectations the Bank of Canada will begin to cut rates this year after an aggressive series of hikes that took the policy rate from the near-zero level in March 2022 to the current 5.0 per cent in July 2023.
BENGALURU — Home prices in Canada are forecast to gain a bit this year and rise further in 2025 on relentless demand for housing amid scant new supply and prospects for interest rate cuts later in 2024, according to a Reuters poll of experts.
The outlook has stayed broadly unchanged since the last survey in November, despite market expectations that the first rate cuts from most major central banks, including the Bank of Canada, will come later than estimated a few months ago.
After surging more than 50 per cent during the COVID19 pandemic thanks to nearzero interest rates and a panic rush by existing homeowners to find more space, Canadian home prices have fallen about 14 per cent from an early 2022 peak, including a brief period when they rose again.
That decline, despite a chronic shortage of homes, was due to weaker demand as higher mortgage rates and prohibitively expensive prices excluded many potential home buyers from entering the property market.
Mortgage rates have fallen slightly over the past few months on expectations the Bank of Canada will begin to cut rates this year after an aggressive series of hikes that took the policy rate from the near-zero level in March 2022 to the current 5.0 per cent in July 2023.
That, along with a modest drop in home prices from the pandemic peak, has encouraged some buyers to re-enter the market.
Average Canadian home prices were expected to rise 1.2 per cent this year after declining 5.5 per cent last year, and climb another 3.3 per cent in 2025, the Feb. 15 to 28 poll of 17 analysts showed.
“This winter’s renewed market vigor is making it a more competitive environment for buyers ... we think a pivot towards rate cuts mid-year will get the wheels turning faster over the second half, perhaps even sooner,” wrote Robert Hogue, assistant chief economist at RBC. “There will be a lot of pent-up demand to satisfy once confidence returns, which could heat things up in a hurry. However, poor affordability conditions will restrain the recovery and make it a gradual liftoff.”
While home sales rose 3.7 per cent in January, and were up 22 per cent on an annual basis, housing starts fell 10 per cent last month, cementing the view that the demandsupply gap is widening.
When asked what would happen over the coming two to three years, nearly 70 per cent of analysts, nine of 13, said the gap would stay about the same or widen. Only four said it would narrow.
“Housing affordability is a significant problem in Canada — but not one that can be fixed by raising or lowering interest rates,” Bank of Canada governor Tiff Macklem said earlier this month.
But much still will depend on interest rates in an economy so reliant on the property sector. Bringing rates down quickly could fuel demand.
More than 60 per cent, or eight of 13, of analysts said the ratio of home owners to renters would decrease over the coming year, though the same proportion said purchasing affordability for first-time home buyers would improve.
The federal government recently announced a twoyear extension on a ban on new foreign ownership of housing to address concerns that Canadians are being priced out of the market.