Housing affordability may still be tight across Canada, but it improved in virtually every major market at the beginning of the year amid sliding home prices and weaker demand.
Still, that trend hasn’t seen a big upswing in buyers entering the market, with a variety of factors – including a harsher-than-usual winter and continuing economic uncertainty – keeping plenty of potential purchasers on the fence.
A recent analysis by Royal Bank of Canada (RBC) highlighted how home resales plunged at the beginning of the year across key markets including Vancouver, Calgary, Toronto, Edmonton and Montreal, with new listings also surging in the latter two.
Rates on the up as Middle East conflict spills over
For mortgage brokers and lenders, the question of how to coax hesitant buyers into the market has no easy answers, especially with the ongoing conflict in the Middle East injecting fresh uncertainty into the economic and inflation outlooks.
Five-year Government of Canada bond yields, a key driver of fixed mortgage rates, have increased by nearly 10 basis points since Friday amid skyrocketing oil prices and fears of a protracted US-Iran war.
And Canadian Mortgage Professional readers don’t seem to be counting on much help from the Bank of Canada either, with 50% of respondents to our latest poll currently indicating they expect no cuts at all for the remainder of the year.
That’s bad news for buyers on the margins whose affordability is already stretched. But could it also boost the renewal and refinance markets in the short term if borrowers rush to lock in current rates in the expectation that they’ll spike in the months ahead?
“In the [Edmonton] housing market, the sales side was down at one point by 23% year over year in the early part of the year,” Brokers for Life’s Len Lane (pictured top), a broker based in the city, told CMP.
“But as far as the mortgage side of it goes, it’s a strong renewal market. We seem to be seeing a lot of refinances, and people are realizing that the rates might be going back up depending on what happens where in the world.”
Length and intensity of Iran conflict likely to determine economic impact
In terms of the war’s ultimate impact on Canada’s housing market this year, Lane says much will depend on how long it continues.
This week has seen seemingly contradictory signals from the US on that front, with Donald Trump suggesting the conflict could end soon but also ramping up attacks. Iran’s new supreme leader Mojtaba Khamenei, meanwhile, appears determined to keep the Strait of Hormuz – an essential conduit for the flow of oil – closed to disrupt the global economy and keep oil prices rising.
For now, the economic impact of the conflict remains unknown. But a longer-term war would almost certainly weigh more heavily on the Canadian economy.
“I think about [the war] being inflationary more than anything,” Lane said. “$100 oil, if it’s only there for a couple of weeks, doesn’t have that big an effect. It really needs to be 90 days, 180 days out to really make any kind of different impact.”
But while pricier markets like Toronto and Vancouver might continue to struggle for the rest of the year, Lane doesn’t see a deep freeze in Edmonton, a typically more balanced and affordable city for housing.
And slowly climbing mortgage rates, he added, could jolt some buyers off the sidelines to lock in a fixed rate on a purchase before costs spiral out of control.
“I think people will still jump into the market because they see that rates plateaued in the 4% range,” he said. “Housing prices, while the sales were still slow, really didn’t come down a whole lot.
“So I think everybody kind of sees it as: If you’re going to get in, now is the time. I don’t see the Bank of Canada moving in either direction for a while until they figure out what’s going on worldwide as well.”
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