With another Bank of Canada announcement on the horizon, a significant change is coming on its heels to the housing market and, in particular, Canada’s most unaffordable real estate region: Metro Vancouver.
The Bank of Canada is expected to cut its overnight rate again tomorrow by 25 basis points to 4.25%, and more cuts are expected before 2025. This leads many to suggest that the current dog days of summer sales in Vancouver and surrounding cities could be in the past, prices could drop, and demand could finally return to tackle the bloated inventory in some multi-family micro markets.
Among those voices is Adil Dinani with Royal LePage West Real Estate Services, who predicts rates could be 1.50% lower in just 12 months, which might encourage those on the fence about homeownership to make the leap.
According to a recent Royal LePage survey conducted by Hill & Knowlton, nearly 75% of millennials and Gen Z say that owning a home is a priority for them, and nearly one in five respondents who are planning to purchase a home say that their timeline to buy is within the next three years.
For them, there might be some major movement in the market regarding affordability. As Dinani said, interest rates are the oxygen of real estate.
“Because the reality is, people don’t buy the purchase price; they buy the monthly payments. What can we afford? And when interest rates are coming down, affordability generally improves.”
“Activity increases because of affordability, and similar to in the pandemic, when we saw record low rates, we saw record high activity and record-high prices. We anticipate that by the end of this year, some of the extra inventory we have in the market will probably be absorbed, and we’ll move towards stronger, well-balanced markets in 2025.”
In some areas, those monthly payments have been significantly higher than renting, forcing many buyers to walk away before even opening the door.
Surrey’s Central City and Burnaby’s Brentwood micro markets are among the spots that have seen that imbalance. Several new developments have been completed over the past three to six months or are closing in the coming months, leading to a surge in listings.
“There was a very prominent developer who completed a project in the Brentwood area, and between two towers, there were 120 listings on the market. So buyers had a lot of options.”
He said that, unfortunately, many of those buyers bought presale when the economy was very different.
“Rising prices and low interest rates four or five years ago is drastically different to when they get the key in 2024, and oftentimes, they don’t have the ability and opportunity to hold through these higher rates and perhaps be in a business and negative cash flow situation because your rent is not going to cover mortgages, higher rates, that they have to sell at prices often below what that home was purchased for four years ago. So it’s a tough situation for buyers who bought in that, or for buyers that are in that predicament.”
He said investors are being more selective, but they are still buying those desirable properties. A detached home, priced to sell, is still seeing multiple offers. It’s not the 10 offers with no contingencies like in the overheated past, but he said they’d still see a handful.
“I think the condo market still has to work through this excess supply that’s coming online, especially in those pockets that are seen building completions. We have to see how the inventory gets managed and how it can just work. In the detached home market, they’re not making any more land, right? There’s a finite supply of single-family homes for sale at any given time, and they’re not making any more, so I think for that purpose and that reason, I think that the detached single-family market will probably tighten up much quicker than the condo market.”
“Buyers certainly have time to be patient. But that window could close. I think 12 months from now, we will be in a very different environment.”
He adds that he believes we could see price stability like we haven’t seen in five years. He’s already seeing it in some areas, where prices have already cooled after the pandemic saw a surge in demand for places like Maple Ridge, Kelowna, and the Fraser Valley market.
“Certainly, the stage is being set for a more active housing market as inventory, as far as costs come down.”
Experts and the Bank of Canada are also watching for when the predicted rate cut cycle will begin stateside. The US Federal Reserve has been behind Canada and has held firm on its rates to offset inflation, putting lenders through aggressive levels not seen in two decades.
“If you look at the difference between Canadian dollars and US dollars, it’s all enforced by policy rates, interest rates on each side. And I think the bigger the divergence between those rates, the more it could really hurt the exchange rate,” he said.
The long-awaited “soft landing” that Fed chief Jerome Powell has hinted at could come this month, which would put the two countries in policy lockstep as cutting cycles continue.
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With files from Kenneth Chan and Imaan Sheikh