Canada's housing market is poised for a moderate recovery in 2024, with the average price of a single-family home reaching $801,600 CAD. This comes after a turbulent period marked by high interest rates, sluggish sales, and declining affordability.
In the first half of 2024, the market is expected to remain subdued as the Bank of Canada continues to maintain its policy rate at historically high levels. This has kept homeownership out of reach for many potential buyers, further cooling demand across the country. However, a significant shift is anticipated in the latter half of the year, as interest rate cuts are expected to reinvigorate the market. The lower borrowing costs could unlock pent-up demand, particularly among first-time buyers who have been sidelined by the steep costs of financing.
Right now, Canadian banks hold a lot of mortgage-related assets. If the housing market were to crash and many people defaulted on their mortgages, Canadian banks could face huge losses, just like the Japanese banks did. Even if the central bank lowered interest rates to zero, it… pic.twitter.com/QYobx4oWnn
— The Economic LongWave (@TheELongWave) August 10, 2024
Despite the challenging conditions, the average home price in Canada has shown resilience, climbing to $801,600 CAD. This reflects a 2.5% year-over-year increase, driven by a combination of factors including limited supply, high construction costs, and strong underlying demand fueled by population growth.
According to the Canadian Real Estate Association (CREA), the national average home price is forecasted to rise further by 5% in 2025, suggesting that the market will continue to recover as borrowing conditions improve.
Even after 2 rate cuts houses are selling well below peak 2022 prices.
Welcome to the Canadian housing market. 🇨🇦 pic.twitter.com/gNlqfTI78n
— EconomicWoes 🦁 (@ManyBeenRinsed) July 30, 2024
Regionally, the recovery is expected to be uneven. Provinces such as Alberta and Saskatchewan, where markets are already showing signs of improvement, are likely to lead the resurgence. In contrast, more expensive markets like Ontario and British Columbia will see slower growth due to their severe affordability challenges. RBC Economics projects that while home sales in these regions will rebound, they will still fall short of pre-pandemic levels.
The impact of the high-interest rates has been particularly acute in the major urban centers, where the cost of homeownership has soared to unprecedented levels. This has pushed more Canadians into the rental market, exacerbating the housing affordability crisis. The Canadian Mortgage and Housing Corporation (CMHC) has highlighted the pressing need for increased housing supply, particularly in the rental sector, to alleviate some of the pressures faced by renters.
Looking ahead, the broader housing market is expected to be busier in the second half of 2024, with a 9.2% increase in home resales year-over-year. However, the market is unlikely to return to the frenzied activity seen during the pandemic anytime soon. Experts caution that the recovery will be gradual, with affordability issues continuing to weigh on the market. The Bank of Canada’s cautious approach to rate cuts, aimed at avoiding a sudden surge in housing demand and subsequent price inflation, will also temper the pace of the recovery.
Overall, while the Canadian housing market is set to rebound in 2024, it will be a slow and uneven process, shaped by the interplay of interest rates, affordability, and supply constraints. As the average home price inches closer to its previous peak, prospective buyers will need to navigate a challenging landscape where affordability remains a significant hurdle.
