Economists say the Bank of Canada’s pause in rate hikes has emboldened buyers back to the market, so why not sellers?
Kavcic says in the past, housing downturns that have evolved from a price correction into a crash — like the housing crisis in the United States in 2008 or southern Ontario in the 1990s — have been driven by forced selling.
That isn’t happening this time, and there are several reasons why, he said.
- Potential sellers don’t want to sell in a downmarket and this time they don’t have to, thanks to a strong job market and limited mortgage delinquencies.
- Banks are giving homeowners on variable-rate mortgages a buffer by stretching out amortizations instead of hiking payments as rates have risen from below 2 per cent to above 6 per cent during the Bank of Canada’s aggressive rate hiking cycle over the past year.
- The Office of the Superintendent of Financial Institutions made sure most buyers were stress tested. Even those who took out mortgages at 1.5 per cent had to prove they could handle rates in the 4.75 per cent to 5.25 per cent range or higher.
- A strong rental market is making it worthwhile for investors to hang in there, even as cash flow worsens. “Swallow a capital loss or hang on? Many seem to be hanging on,” said Kavcic.
Add to all that a surge in population from immigration and you have a very tight housing market.
The national sales-to-new-listing ratio hit 63.5 per cent in March, up more than 10 percentage points in two months, returning Canada’s housing market to seller’s territory for the first time since April 2022. There were 3.9 months of inventory on the market, down from the pre-pandemic norm of five months.
The lack of sellers is also putting a floor under home prices, said Kavcic. The national composite MLS Home Price Index rose 0.2 per cent in March, the first gain in over a year.
Ontario markets led the gains, with prices rising 3.1 per cent from the month before in Sudbury, 1.6 per cent in Toronto and 1 per cent in Kitchener-Waterloo.
Vancouver home prices were flat but some markets saw declines, including Calgary, down 0.2 per cent, Ottawa, down 0.7 per cent, Montreal down 0.3 per cent and St. John’s, off 1.4 per cent.
“Prices are still down 15.5 per cent from a year ago and 16 per cent from peak levels, but that could be it for this correction,” said Kavcic.
What happens next depends on the economy.
“Reaching the cyclical bottom doesn’t mean activity and prices are about to rebound sharply immediately thereafter, wrote RBC assistant chief economist Robert Hogue in a note.
RBC sees the recovery starting slowly later this year as affordability and a slower economy hold buyers back.