Fresh home sales data has finally answered the question for real estate watchers: The Bank of Canada's initial interest rate cut in June did not open the floodgates to buyers, many of whom remain sidelined through an unseasonably slow spring housing market.
Sales figures from local real estate boards released in the past week show last month's home sales did not see much of an uptick after the Bank of Canada's quarter-point cut on June 6, the first decrease in four years and a substantial shift in monetary policy after the central bank's fastest tightening cycle on record.
“Despite the Bank of Canada rate cut at the beginning of last month, many buyers kept their home purchase decisions on hold,” the Toronto Regional Real Estate Board (TRREB) said in its monthly report that showed a year-over-year drop in June home sales.
The Real Estate Board of Greater Vancouver echoed findings of buyer hesitancy persisting in June, with home sales in the metropolitan market out west also holding below seasonal levels.
Phil Soper, CEO of Royal LePage, tells Global News that he thought there would be more of a response on the ground after the long-awaited cut in borrowing costs.
“I honestly expected more of a reaction from the marketplace,” he says.
The reaction to lower borrowing costs appears to be showing up first among existing owners who have started to list their properties, Soper says, as evidenced by rising inventories in markets across Canada.
But he notes that a 25-basis-point cut wasn't enough to “change the affordability game” for first-time buyers who remain shut out of the ownership market.
While many buyers in the market today have been able to secure fixed-rate mortgages below the five-percent bar, Soper expects rates on offer will have to start floating in the range of 4.0-4.5 per cent before buyers are confident enough to seriously test the market.
“It probably will take an additional couple of rate cuts of that magnitude to start to make a real difference,” he says.
TRREB President Jennifer Pearce said polling conducted for the local board revealed cumulative easing of 100 basis points would be needed to boost home sales “by any significant amount.”
Bank of Canada governor Tiff Macklem has said that the central bank is likely to ease its benchmark interest rate further if inflation continues to ease according to its forecasts.
Where do home prices go next?
Royal LePage also released its latest House Price Survey on Thursday where it noted the aggregate price of a home increased 1.5 per cent quarter-over-quarter to $824,000 in the second quarter of the year. The median prices for both detached and condo-style properties were up on a quarterly and annual basis in Q2, the report noted, each rising by low single-digit percentages.
Soper says that while a slow housing market usually sees sellers compromise on price to get their home sold, Canada's structural supply shortages have kept values elevated even in a cooler period.
Meanwhile, the Prairies and Atlantic Canada — the beneficiaries of interprovincial migration — are seeing price increases amid hot competition for homes in cities like Edmonton and Calgary, Soper says.
Royal LePage is maintaining its forecast for a nine per cent annual increase in home price values in the fourth quarter of 2024, but Soper notes that prices were heading down nationally in the final quarter of 2023, which can make the modest improvements in home prices this year seem outsized in comparison.
From the midpoint of 2024 through to the end of the year, he expects price growth will be more in the low-to-mid single digits.
Royal LePage doesn't have a rate cut pencilled in at the Bank of Canada's next decision on July 24, which he says means that mortgage rates won't fall much further from today's levels heading into autumn.
But “demand is building,” Soper says, as Canada's population grows and savings rates climb, particularly among a millennial generation that's eager to make moves in the housing market.
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