NAVIGATING THE 2024 REAL ESTATE LANDSCAPE: INSIGHTS FOR HOME BUYERS AND SELLERS

Last spring, prospective home buyers defied expectations as they shrugged off increased borrowing costs, flocking to new home sales in significant numbers. The resulting surge in competition for the limited available properties not only led to a spike in home prices but also revitalized sellers' confidence in achieving top dollar for their homes. However, experts are now advising caution, highlighting the potential for a different trajectory in the 2024 housing market, particularly if Canada's economy faces another downturn later this year.¹

Following the increase in interest rates by the Bank of Canada last summer, there has been a noticeable decline in home sales across various regions, creating challenges for both buyers and sellers in finalizing transactions.² The softening of Canada's economy has added to the cautious approach adopted by some home buyers.³ However, the anticipation of a rate cut by the Bank of Canada in the upcoming spring suggests a potential revival in competition among buyers, bringing a swift return to a more active market.⁴

The cooling trend is not uniform across every neighbourhood, emphasizing the timeless saying that "all real estate is local."⁵ In such a dynamic market, those who gain a competitive edge will be the home buyers and sellers who actively utilize the on-the-ground expertise of a real estate agent. Staying flexible is key, enabling them to swiftly adjust to hyper-local changes as they unfold.

How does this impact you? Continue reading to delve into the present conditions of the Canadian housing market, discover potential opportunities for both buyers and sellers, and explore the insights and predictions from economists for the upcoming year.

ANTICIPATED SOONER DROP IN MORTGAGE RATES

The most promising development for 2024? The exceptionally high mortgage rates, which have been a significant burden on the Canadian real estate market for a considerable period, may finally be trending downward.

Referring to a global economic deceleration and positive trends in inflation, the decision-makers at the Bank of Canada chose to maintain the central bank's key rate in December, having previously elevated it to a 22-year peak last summer.⁶ While authorities cautioned about the potential for another rate increase in 2024, the prevailing slowdown in Canada's economy has led many market observers to anticipate a shift towards rate cuts, potentially as early as March.⁷

Fixed mortgage rates may see a more rapid decline. The projections of the market significantly influence bond yields. Hence, if traders anticipate a rate reduction from the federal authorities, bond yields are poised to decrease even more. "It's all about expectations," emphasized James Laird, CEO of Ratehub, in a statement to Global News.⁸

The bond market has already experienced a noticeable cooling since autumn. Consequently, individuals with excellent credit in Canada may find themselves in a position to secure mortgage rates that are closer to 5% rather than 6%—and potentially even lower.⁹

Should rates decline as anticipated, this could invigorate the housing market. According to mortgage expert Clay Jarvis, as shared with Nerdwallet in 2023, "If fixed rates dip below 5% next year—and we’re not in a full-blown recession—it’s likely Canadians will re-enter the market with considerable enthusiasm. The pent-up demand and FOMO will be too strong for many to resist."¹⁰

How does this impact you? If you're considering buying a home, the drop in mortgage rates could provide the opportunity you've been anticipating, allowing you to secure a home with a more budget-friendly monthly payment. Acting before the market heats up again might enable you to secure an especially advantageous deal. To identify the lowest rates, it's beneficial to compare lenders. Feel free to reach out to us for a referral to a mortgage broker who can adeptly negotiate a competitive mortgage rate on your behalf.

Sellers also have cause for enthusiasm with the decrease in buyers' interest rates. As the hurdles for entering the housing market diminish, sellers may experience an increase in more favourable offers. Don't hesitate to get in touch to explore how we can assist you in optimizing your home's sales potential.

 

NAVIGATING DEMAND CHALLENGES AMIDST LOWER RATES AND A WEAKENING ECONOMY

As pent-up demand continues to grow, recent surveys indicate a sustained interest in real estate among Canadians. A study by Dye and Durham revealed an increasing number of Canadians seriously considering home purchases in 2024. ¹¹

However, the challenge persists for buyers with typical household incomes due to high-interest rates. Affording current prices often requires a substantial amount of saved cash or significant home equity. The softening economy has contributed to a decline in buyer confidence, with Canadians expressing more pessimism about their employment and finances, according to the Conference Board of Canada.¹²

Simultaneously, many home sellers remain anchored in the past, hesitant to adjust their prices to current market realities. Consequently, buyers and sellers find themselves locked in a persistent stalemate in numerous regions, leading to a substantial drop in home sales volume.⁵

The Canadian Real Estate Association (CREA) notes a shift in the market dynamics, with new listings surpassing purchases in some major housing markets as market conditions loosen.¹³ However, this softening trend is uneven, with certain areas remaining highly competitive.⁵

While falling interest rates are anticipated to stimulate demand and tighten the market, a slowdown in Canada's economy poses a potential complication. Economists at Desjardins forecast softer sales and prices in most major markets during the spring months, citing a significant spread of weakness.¹⁴

How does this impact you? The era of effortless home sales with minimal preparation is behind us, at least until the market shows signs of recovery. Now, successful home sales require strategic effort and planning to distinguish your property in a competitive market. Our expertise can assist you in optimizing your home's appeal to attract serious buyers.

For home buyers, a unique advantage awaits in the upcoming months—particularly those who enter the market early, capitalizing on limited competition. Contact us to schedule a consultation, allowing us to assist you in devising a winning strategy for your home search.

 

CHALLENGES AHEAD FOR HOME PRICES, YET POTENTIAL CLIMB WITH DECREASING RATES

Buyers grappling with enduringly high prices and historically elevated rates may find a reprieve this year. As Canada's economy experiences a slowdown, pricing forecasts are undergoing active revisions.

Notably, economists at TD, in November, projected a 10% drop in home prices during the first quarter of 2024 compared to the third quarter of 2023—double their earlier estimate. ¹⁵

The dwindling sales landscape has empowered remaining home buyers, allowing them to leverage a stronger bargaining position and extract price concessions from sellers, resulting in a slip in the MLS Home Price Index.¹⁶

Despite expectations that home prices will generally surpass pre-pandemic levels, diminished sales coupled with increasing inventory levels may exert downward pressure on prices in specific regions. Keen-eyed buyers might discover enticing deals in neighborhoods that previously experienced overheated markets due to intense competition.

However, the enduring historic housing supply shortage in Canada serves as a cautionary note. Buyers delaying their entry into the market might find themselves settling for larger mortgages in the future. According to CIBC's Tal, looking ahead one to two years, as the market returns to normalcy with an influx of newcomers and non-permanent residents, demand will outpace supply, leading to a potentially frenzied and competitive market.¹⁷

How does this impact you? If you're a homeowner looking to sell, now may be the opportune time to list your property, especially while housing inventory remains relatively low. We're here to assist you in devising a strategic plan to optimize your profits, beginning with a comprehensive evaluation of your home's current market value. Feel free to reach out and schedule a complimentary consultation with our team.

Meanwhile, for astute buyers seeking opportunities, there's exciting news. The challenges associated with home affordability are projected to be alleviated significantly. A unique window may emerge, where both mortgage rates and home prices are in decline—a rare opportunity for proactive buyers. If you're ready to embark on your home search, contact us to get started.

 

EXPANDING OPTIONS FOR BUYERS AMIDST ONGOING SUPPLY SHORTAGES

Buyers keen on having a variety of options will likely find an increased selection this year compared to 2023. The number of existing homes for sale has already risen in many regions, driven by a surge in new listings outpacing purchases, and there's potential for additional inventory to enter the market in the months ahead. ¹³

Numerous sellers have been on the sidelines, awaiting favourable rate conditions or a market upswing. If a larger portion of these sellers decides to make a move, there could be a swift increase in the number of resale homes available.

Moreover, a growing segment of Canadian mortgage holders is anticipated to face payment challenges as they renew at rates significantly higher than their current ones. This may lead to an uptick in homeowners defaulting on loans or opting to list their properties due to affordability constraints.

Despite these factors, the risk of oversaturation in the market remains low due to Canada's severe housing supply shortage. Economists at TD Bank emphasize that Canada could face a shortage of over 300,000 housing units from 2023 to 2025, as population growth collides with a slower pace of homebuilding.¹⁸

How does this impact you? As the market experiences a winter cooldown, a surge in supply is expected. In the immediate term, buyers who have the flexibility to act swiftly stand to gain from this temporary buyer's market. Feel free to get in touch with us to discuss your goals and budget, enabling us to guide you in making an informed decision about the optimal time to make a purchase.

For sellers, the ongoing supply shortage remains advantageous, but heightened competition should be anticipated. Our expertise is at your disposal to assist you in preparing your property for the market, emphasizing features that align with the preferences of today's buyers.

 

WE'RE HERE TO ASSIST YOU EVERY STEP OF THE WAY

While national real estate forecasts offer a broad perspective, real estate is inherently local. As experts in your local market, we have insight into factors that are likely to influence sales and shape property values in your neighborhood. Serving as your reliable partner in the real estate journey, we stay attuned to market nuances to guide you through its fluctuations.

If you're contemplating buying or selling a home in 2024, reach out to us for a complimentary consultation. Let's collaborate to devise a customized action plan that aligns with and achieves your specific real estate objectives.

 

The above references an opinion and is for informational purposes only.  It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.

Sources:

1. Financial Post -
   https://financialpost.com/news/economy/canada-mortgage-math-means-crisis-looming
2. Financial Post -
   https://financialpost.com/news/canada-housing-market-sales-prices-fall-further
3. Global News -
   https://globalnews.ca/news/10068567/statistics-canada-jobs-report-oct-2023/
4. Canadian Mortgage Trends - https://www.canadianmortgagetrends.com/2023/12/bank-of-canada-preview-rate-hold-expected-as-attention-shifts-to-rate-cuts/
5. Global News -
   https://globalnews.ca/news/10098594/canada-housing-market-home-sellers-fall-2023/
6. Bank of Canada -
   https://www.bankofcanada.ca/2023/12/fad-press-release-2023-12-06/
7. The Globe and Mail - https://www.theglobeandmail.com/business/article-bank-of-canada-interest-rate-live-december/
8. Global News -
   https://globalnews.ca/news/10142334/bond-yields-canada-mortgage-interest-rates/
9. Canadian Mortgage Trends - https://www.canadianmortgagetrends.com/2023/12/mortgage-rates-under-5-theyre-coming-back-as-lenders-slash-fixed-rates/
10. Nerdwallet -
    https://www.nerdwallet.com/ca/personal-finance/financial-trends-that-could-shape-2024
11. Dye and Durham - https://dyedurham.ca/new-data-shows-canadians-remain-concerned-about-looming-recession/
12. Conference Board of Canada - https://www.conferenceboard.ca/focus-areas/canadian-economics/housing-market-update/
13. CREA - https://www.crea.ca/media-hub/news/canadian-home-sales-see-downward-trend-continue-in-october/
14. Desjardins - https://www.desjardins.com/en/savings-investment/economic-studies/canada-housing-outlook-nov-2023.html
15. Global News -
    https://globalnews.ca/news/10110607/canada-real-estate-td-housing-price-forecast/
16. RBC -
    https://thoughtleadership.rbc.com/ontario-leads-canadas-housing-market-cooldown/
17. RENX -
    https://renx.ca/interest-rates-are-coming-down-soon-benjamin-tal
18. TD Economics -
    https://stories.td.com/ca/en/article/canada-housing-supply