Optimism on the outlook for Canada’s housing market continued to gather pace last week as TD upgraded its forecast for homebuying activity moving into 2025.
The banking giant said the dramatic events of the past two weeks, which have seen bond yields rapidly repriced amid darkening prospects for the US economy, had hastened the likely timeline and severity of cuts both here and south of the border.
Cuts are by no means expected to trigger a huge surge in housing and mortgage market activity – but the seeming certainty of rates moving lower has helped bring about a significant improvement in both homebuyer and homeowner sentiment.
Drew Donaldson (pictured top), broker and principal at Donaldson Capital in Toronto, told Canadian Mortgage Professional that clients appeared enthused by the Bank of Canada’s last two interest rate announcements, which saw consecutive 25-basis-point cuts in June and July.
That’s been accompanied by an uptick in current homeowners considering a refi. “I’ve noticed more positive conversations with clients exploring the possibility of a refinance to lower their interest rates,” he said.
“I wouldn’t say there’s exuberance in the market like we saw during COVID, but people are restructuring and starting to make moves.”
The central bank move saw variable rates finally begin to drop, with fixed rates also on the way down in recent weeks. Nonetheless, those developments on their own are unlikely to result in a marked shift in the national housing market: RBC, among others, have highlighted that further cuts are likely needed for activity to click into a higher gear.
The Canadian Real Estate Association (CREA) revealed last week that national home sales had fallen by 0.7% in July compared with June, a possible indication that hopeful buyers are waiting for rates to drop further before they step into the market.
The MLS Home Price Index (HPI) inched slightly upwards compared with the previous month, but sat 3.9% below its level from the same time last year.
Purchase activity may be subdued at present – “but with a lot of inventory coming on board which could be difficult on prices, I do believe there will be quite a bit of sales this fall,” Donaldson said, “making it a more robust market than 2023 was.
“Regardless [of whether] prices go up 10% or fall 10%, the activity and actual sales are what drive the mortgage business.”
Rate-cutting preference a positive sign for buyers
While the Bank’s two summer rate cuts may not move the needle much where the mortgage market is concerned, the fact that it appears firmly in cutting territory will come as welcome news to borrowers and prospective homebuyers across the country.
That marks a big shift from a spate of rate hikes throughout 2022 and the first half of 2023, a policy that threw cold water over Canada’s housing market and saw borrowing costs spike for scores of borrowers.
For Donaldson, its new approach is a sign of likely better times ahead. “The direction for interest rates is positive, with many economists believing rates will trickle lower from here,” he said. “This is welcome news which should bring the refinance market roaring back to life.
“In the end, we enjoy saving our clients money by lowering their interest costs, which has been difficult to do the past few years – but the tide is finally turning.”
How big a worry is Toronto’s slumping condo market?
Toronto’s beleaguered condo market has recently drawn plenty of attention, with TD describing that segment as one that could have a sizeable role in influencing the overall outlook.
Higher borrowing costs upon completion have left many buyers of new condo projects in the lurch, while rising rates have plunged a growing number of investors into a cashflow-negative situation. With benchmark condo prices having slid by an average of around 2% from 2023’s fourth quarter, further drops will probably be required to rebalance inventories, according to TD.
Still, that’s unlikely to bring about a crisis. “Economic resilience, pent-up demand, solid population growth and falling interest rates should be enough to support positive price growth in the GTA housing market overall,” the bank said.
CMP
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