On June 5, The Bank of Canada announced its first rate cut in four years. This could be the sign many were waiting for to come off the sidelines and step into Canada’s housing markets. But, what does that look like across the country and how do other economic factors play into the decision making process?

On the latest episode of REAL TIME, we hear from Shaun Cathcart, Director and Senior Economist, Housing Data and Market Analysis with the Canadian Real Estate Association (CREA), Ann-Marie Lurie, Chief Economist with the Calgary Real Estate Board (CREB), and Jason Mercer, Chief Market Analyst with the Toronto Regional Real Estate Board (TRREB), as they share insights on the current state of Canada’s housing market from a national, provincial, and local level, exploring everything from the need for more supply to interprovincial migration to pricing.

Transcript

Erin Davis: It finally happened. On June 5th, the Bank of Canada lowered the interest rate for the first time in more than four years. Could this indicate the beginning of a shift in the Canadian housing market? If so, what can we expect at a national, provincial, and local level? I'm Erin Davis. Welcome to REAL TIME, the podcast for REALTORS®, brought to you by the Canadian Real Estate Association. Now, who better to speak to the state of Canada's housing market and economy in general than our three guests today?

Joining us are, Shaun Cathcart, Director and Senior Economist, Housing Data and Market Analysis with the Canadian Real Estate Association, Ann-Marie Lurie, Chief Economist with the Calgary Real Estate Board and formerly with the Alberta Real Estate Association, and Jason Mercer, Chief Market Analyst with the Toronto Regional Real Estate Board. Welcome to REAL TIME. What does the Bank of Canada's most recent announcement mean for current and potential Canadian home buyers? Why did this change happen now? We're going to start with you, Shaun.

Shaun Cathcart: Sure. Let me take the second part of that question first. The reason it happened now is because the Canadian economy is not doing that well. Inflations and the Bank of Canada's favorite BFFs, CPI-common, CPI-trim, CPI-median have been well-behaved, as they say, for four months and it just seemed like the right time. They were a little bit worried about the housing market doing it in the middle of the spring market, but they did it anyway.

What it means for current home buyers or current homeowners, if they've got variable rates, their payments will go down. If they've got fixed rates, that their renewal date is looking better, whatever that is out into the future now that this rate cut cycle has started. If you're a potential home buyer, if that's the signal you were waiting for to jump into the market, there you have it.

Erin: It really has a psychological element to it, doesn't it, Shaun?

Shaun: Very much so. If you think back to last year when buyers jumped into the market with both feet in March and April, basically anticipating rate cuts, and all they got was rate hikes, they weren't going to get fooled again this year. That camp has probably moved over into the, I'll believe it when I see it, and now they've seen it.

Erin: Ann-Marie, how about your perspective on this?

Ann-Marie Lurie: For our market, it's a little different. We're already in really tight conditions. Any change in rates is just going to bring even more demand into our market, especially for people who were priced out to a certain extent. What we'll be closely watching is what actually happens on the bond yield? Are we going to see this transfer into declining five-year lending rates on the qualification basis? Those are the things that we're looking at. Again, it's just going to further tighten and increase demand even more so than what we are already experiencing.

Erin: Because you've already seen pent-up demand and activity even before the rates moved, right?

Ann-Marie: That's right. Our market has been performing very differently than what you're seeing in some other major markets in the country. We've seen extremely strong demand, we have limited supply, we're in seller market conditions, and we've had strong price growth. This has been happening all the while, while we have very strong or very high interest rates.

Erin: Jason, your take on this. Do you think it's about time or what do you think?

Jason Mercer: Certainly, if you look at the GTA experience, it's been quite a bit different than what Ann-Marie was describing out West in Alberta or Calgary in the sense that, we did see a very real impact when the Bank of Canada hiked rates through 2022 and 2023. A lot of would-be homebuyers moved to the sidelines. It's not to say that most of these people don't want to purchase a home. In fact, most of them have every intention on making a purchase as we move forward.

Our public opinion polling done by Ipsos suggests that there's a lot of these homebuyers that maybe this first move on the part of the Bank of Canada may see some of them start to get back into the market. In reality, we probably need to see 100 basis points, 150 basis points before we start to see a real marked acceleration in sales activity. We'll see stronger activity in the second half of 2024, but even more so as we move into 2025.

Erin: Predicting is hard, we know that. What do you think July's interest rate announcement could bring?

Jason: Sure. I think the Bank of Canada stated that they're going to be watching all the various economic indicators. I think that's the case. I do believe that if we continue to see slower growth in the economy and moderate growth in the employment market, then I think there is, at least, a chance that they could bring on another cut as we move into July. It's probably 50-50 at best at this point.

Erin: Do you think a lot of people are holding on now? We're selling a house, so this may be a little bit personal interest here, but I've got you here, I might as well ask. I'm sure that there are people who are very interested in what's going to happen. Do you think that people are going to see the June rate drop and then go, "Okay, why don't we wait until July?" What do you think, Shaun?

Shaun: I think the first one is really the big psychological one. Rates aren't any lower. To Ann-Marie's point, this was already priced into five-year mortgage rates well before, back a month or two ago. It's really the psychological element at this point. To Jason's point, there's a lot of people that if it's the actual rate itself that you're getting that you're waiting for, a lot of them are going to be waiting for maybe 100 or 200 basis points lower than what it is now. For people that are just wanting to be sure, unlike last year where they got burned that the loosening cycle had officially started, that the Bank of Canada is going to wave the green flag on that. I do think that there's some segment of the market that will jump, and I expect to see it showing up in the first little bit of June.

Erin: What are your ideas on it, Ann-Marie? A July drop, what might happen?

Ann-Marie: Again, I think that it depends on how much this actually impacts the overall lending rates. I think it will encourage some people to reconsider getting back in that potentially couldn't. In our market, it's going to depend on if they have supply available to them. We've seen that there's been a shift towards more affordable product. It hasn't necessarily entirely curbed our demand, but we have seen that shift towards more affordable product. What we could start to see happen is a pickup in some of the higher-end product in our market as rates start to come down.

Erin: Interesting. All right. Let's put into context some of these pricing peaks and valleys. If you're looking at housing prices in a vacuum, whether it's locally, provincially, or even nationally without context, it can be hard to see a way out. Is there any context to be added to the discussion around housing affordability that could put things into perspective, Shaun?

Shaun: Sure. I think the biggest impact on housing affordability is the fact that the Bank of Canada is expected to move rates back towards much more normal levels or what would be considered neutral by them, which may be 3%-ish from the 5% that we were at for so long. That'll make a big difference for affordability. If you're expecting a lot more in the way of price declines, the biggest price declines were really in 2022 from quite frankly, a very short-lived peak.

People have bought basically, between October of 2021 and March of 2022. Other than that, a lot of markets are already stabilized near those levels that we had before and since. It depends where you are. Quite frankly, I would expect to see some moderate price growth creeping back in as all this demand comes off the sidelines.

Jason: Every market is different. If you look at the greater Toronto area, we have seen a pretty marked uptick in available listings. Initially, as people move off the sidelines and back into the market, start to take advantage of lower borrowing costs, there's still going to be quite a bit of choice out there. There will be negotiating power for buyers. Eventually, we're going to