The Royal LePage Home Price Survey released yesterday showed that total home prices in Canada rose 1.9 per cent year-over-year to $824,300 in the second quarter of this year. National home prices rose 1.5 per cent quarter-over-quarter despite slowing activity in Canada's most expensive markets.
“Canada's housing market is struggling to find a stable rhythm, as the past three months have clearly demonstrated,” said Phil Soper, president and CEO of Royal LePage. “Home prices have increased across the country, but the number of properties being sold has decreased (which is an unusual trend). The silver lining is that inventory levels have increased significantly in many regions, which means the market is closer to balance than it has been in years.”
Soper said the trend is most evident in the greater Toronto and Vancouver areas, where sales have fallen but prices have remained stable, but the Prairie regions and Quebec continue to face tight supply and stiff competition.
Market reaction to June rate cut 'lulled'
Buyers did not immediately return to the market as expected, despite the Bank of Canada cutting interest rates by 25 basis points, from 5.0% to 4.75% on June 5. “Bank rate cuts were highly anticipated this spring, which prompted some buyers to rush to get deals done in preparation for an expected surge in demand. But when the first cuts finally came in early June, the market reaction was lukewarm,” Soper says.
“As expected, the quarter-point cut in the bank rate has not significantly improved home affordability. In terms of consumer confidence, a survey earlier this year showed that only one in ten people would be willing to buy a home with a small reduction in interest rates. If the interest rate cuts had translated into a more significant reduction in borrowing costs, the story the market would be telling would be very different.”
A Royal LePage survey conducted earlier this year found that 51% of homebuyers who had held off on home buying said they would start looking again if interest rates fell, but only 10% said a 25 basis point drop would get them back into the market, 18% were waiting for a 50-100 basis point drop, and 23% said they would only consider a 100 basis point or more drop before resuming their home search.
price
According to the Royal LePage National Home Price Index, which includes both existing and new properties, the median price of a single-family home rose 2.2% year over year to $860,600. The median price of a condominium rose 1.6% to $596,500. Quarter over quarter, the median price of a single-family home rose 1.8% and the median price of a condominium rose 0.8%.
Total home prices nationwide are well above pre-pandemic levels, recording a 30.8% increase compared to the same period in 2019.
“2024 marks the fifth year since the pandemic and post-pandemic recovery began to wreak havoc on real estate prices. Granted, prices are well above 2019 levels, but a 30 per cent increase in home prices over five years, or 6 per cent annual growth, is approaching the long-term norm for home capital appreciation in Canada. Markets have a way of correcting mistakes.”
Inflation and interest rates
Over the past two years, rising interest rates have caused home prices to fluctuate in the Canadian housing market, with some segments of the market stagnating as the Bank of Canada carefully balances lowering its key lending rate with keeping inflation in check.
“Canada's housing market is experiencing subdued demand due to two years of sluggish high borrowing costs. Controlling inflation is important, but with interest rates remaining elevated, there is an increasing risk of a surge in demand when buyers inevitably return. New household formations and immigration continue to fuel housing demand, and a sudden release could make the market highly volatile. This highlights the need for a more nuanced approach that balances controlling inflation with economic vitality,” Soper added.
Canada's inflation rate rose to 2.9% in May, up from 2.7% in April, according to Statistics Canada's latest report. Excluding housing costs, the rate fell to 1.5%.
Forecast for Q4 2024
Royal LePage projects that total Canadian home prices will rise 9% year-over-year in the fourth quarter of this year. Home prices are expected to continue to rise slowly through the second half of 2024.
The full report, including regional summaries, can be found here.