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Navigating the Canadian Housing Seas: Stability Amid Economic Shifts

In the grand overture of Canada’s housing market, a harmonious period of stability is anticipated to unfold in the coming months. BMO’s senior economist, Robert Kavcic, takes center stage in a recent research report, painting a portrait of resilience for the Canadian real estate landscape. However, homeowners expecting a return to the exuberant price gains of yesteryears might find themselves in a different tune.

A Prelude to Stability: Easing Rates and Market Signals

Kavcic’s symphony of stability begins with a prediction that the Canadian housing market will find its equilibrium this year. Lower resale prices, coupled with easing mortgage rates and pent-up demand, are poised to lay a solid foundation. Yet, Kavcic tempers expectations, noting that a return to previous price peaks in certain locations is “unlikely at this point.”

Despite the recent boost in consumer sentiment post the Bank of Canada’s rate hold, and indications that rate hikes might be taking a backseat, there’s a collective whisper in the market about potential rate cuts later in the year. BMO, aligning with other major banks, forecasts the Bank of Canada to trim its overnight target rate by a full percentage point from the current 5.00%.

The Crescendo of Downward Price Pressures: A Lingering Melody

The housing market’s crescendo over the past 24 months has been a symphony of falling home prices, set into motion by the Bank of Canada’s rate-hike cycle. As of December, the national average selling price gracefully descended to $657,145, marking a 20% decline from the zenith of over $816,000 in February 2022.

Kavcic anticipates the downward tempo to persist, especially in Ontario, where robust price gains during the pandemic created a weighty melody. This aligns with the Canadian Real Estate Association’s (CREA) forecast, which envisions a modest 2.3% national price increase in 2024, reaching $694,173. While Alberta, Quebec, and most Atlantic provinces are poised for higher-than-average gains, British Columbia and Ontario are expected to experience a musical pause with flat prices.

“In real terms, Canadian home prices have now largely adjusted back to their long-term growth trend, suggesting that most froth has been cleaned out of many markets,” notes Kavcic.

Affordability as the Echoing Chorus: Strains and Hopes

Despite the melody of falling home prices, the harmony of affordability remains elusive due to the persistent rise in interest rates. RBC economists highlight that affordability struggles will act as a brake on any potential price recovery. National Bank’s Housing Affordability Monitor paints a somber picture, recording a “significant deterioration” in affordability, emphasizing the need for further declines in fixed mortgage rates, anticipated Bank of Canada rate cuts, or stagnant prices coupled with income catch-up to bring meaningful improvement.

Kavcic sees a glimmer of hope amidst the strains, noting that the market exhibits few signs of forced selling. As the symphony of stability unfolds in the Canadian housing market, homeowners and prospective buyers find themselves listening keenly to each note, anticipating the evolving movements in this complex composition of economic shifts and real estate resilience.

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