Resilient Canadian Housing Market: Demand Remains Strong, Predicts Reuters Poll

According to recent analysis conducted by property experts surveyed by Reuters, the Canadian housing market is displaying remarkable resilience. While average home prices are projected to experience a decline of approximately 9% this year, a strong resurgence is anticipated beyond 2024.

Buyers remain optimistic, considering that interest rates have seemingly reached their peak and there continues to be robust demand for housing. Despite the Bank of Canada’s rapid rate hikes since early last year, which raised rates to 4.25% by January, home prices have not been significantly affected. Although they experienced a 15% decline since March 2020, following a surge of over 50% at the onset of the COVID-19 pandemic, the housing market remains remarkably stable.

Projected Rebound and Optimism for the Future:

Since January, when the Canadian central bank opted for a conditional pause on rate increases, in contrast to the continued rate hikes by the U.S. Federal Reserve, home prices in Canada have regained their upward momentum. According to the latest Reuters poll, which surveyed 11 analysts, the forecast for a decline in home prices in 2023 has been revised to approximately 9%.

This projection reflects a more moderate decline compared to the previous poll conducted three months ago, which predicted a 12% fall. Furthermore, the reported 12% year-on-year decline in April, as indicated by the Canadian Real Estate Association, adds to the context.

Looking ahead, the poll suggests that average home prices are anticipated to rebound with a 2% increase in 2024, followed by a 4% rise in 2025. These projections align with the median predictions from the previous poll, indicating cautious optimism for a gradual recovery in the coming years.

The measured approach taken by the central bank, coupled with the resilience of the housing market, inspires confidence in the stability and potential of the Canadian real estate landscape.

“Spring 2023 increasingly looks like the turnaround point for Canada’s housing market after a year-long slump. And perhaps more importantly, demand-supply conditions suddenly appear tight,” commented Robert Hogue, assistant chief economist at RBC.

“Resurging demand and low inventories have put sellers back in the driver’s seat in most major markets…It appears buyers are quickly regaining confidence in both markets now that the Bank of Canada has paused its aggressive rate hike campaign.”

According to a separate Reuters survey, while most analysts anticipate the Bank of Canada (BoC) to maintain interest rates throughout the year, evidence of a strong-performing economy and persistent inflation may prompt the central bank to resume rate hikes.

The projected increase in immigration is expected to further amplify demand relative to supply, suggesting that affordability concerns will persist without immediate improvement in sight.

Challenges and Affordability Concerns:

All analysts who provided their insights agreed that delinquency rates among highly indebted households would experience a moderate increase this year.

“Canada’s housing affordability problem is not easing…and the problem is unlikely to go away under current settings,” stated Douglas Porter, chief economist at BMO Capital Markets.

“While most will argue for a supply-side fix, our longstanding view has been it’s wishful thinking to believe an industry, already running at full capacity, can simply double output in short order, flood the market with new units and bring prices and rents down.”

In conclusion,

the Canadian housing market has displayed remarkable resilience amidst ongoing challenges. While a decline in average home prices is projected for the current year, there is an underlying sense of optimism for a strong rebound in the coming years. The stabilization of interest rates and continued robust demand have contributed to the market’s resilience.

The decision of the Bank of Canada to pause its aggressive rate hike campaign has restored confidence among buyers and sellers, signaling a potential turnaround. As we approach Spring 2023, the housing market appears to be on the cusp of a new phase, with demand-supply conditions tightening.

However, it is important to acknowledge that affordability concerns persist. While there is often a call for supply-side solutions, the industry’s capacity to double output quickly and flood the market with new units is limited. Addressing affordability challenges will require a balanced approach that considers various factors impacting the housing market.

Despite these challenges, the Canadian housing market continues to offer potential and opportunities. Buyers, sellers, and investors are advised to stay informed, monitor market trends, and seek expert guidance when making real estate decisions. By navigating this dynamic landscape with prudence and knowledge, individuals can position themselves for success in the ever-evolving Canadian real estate market.

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