Many Canadians who’ve been boxed out of the housing market since the Bank of Canada started hiking interest rates almost two years ago are waiting for the policy rate to drop before jumping back into the fray.
A Royal LePage report based on Leger polling released Tuesday shows that more than a quarter of Canadians (27 per cent) have been “active in the housing market” since the Bank of Canada started raising its interest rate in March 2022.
But more than half (56 per cent) of those would-be homebuyers who responded to the poll indicated they’ve had to postpone their property search amid the central bank’s rapid tightening cycle that’s seen ratcheted-up borrowing costs and curbed growth in home prices.
The Bank of Canada’s policy rate has stood at 5.0 per cent since July 2023, a 23-year high. Policymakers at the central bank have signalled that the benchmark rate has likely peaked – provided inflation continues to decline according to its forecasts – and that the next move is likely a cut.
When that easing cycle begins, more than half of buyers and sellers who say their plans are on hold indicated they would start coming off the sidelines, according to Royal LePage’s survey.
Some 10 per cent said a drop of even a quarter of a percentage point would get them to resume their search. Nearly one in five (18 per cent) of respondents said they’re waiting for cuts of between 50 and 100 basis points, while 23 per cent said they need to see a steeper drop than that before getting back into the market.
One in five sidelined buyers said they are no longer looking to purchase a property, while 12 per cent indicated their plans to buy are unaffected by the Bank of Canada’s rate path.
A separate survey from NerdWallet Canada published last week shows about one in 10 Canadians are planning to buy a home in the next year, with nearly half of respondents saying they plan to buy in the next five years.
Signs of pent-up demand come ahead of the traditionally busy spring housing market in Canada.
Royal LePage CEO Phil Soper said in a statement Tuesday that the Bank of Canada’s rate hike pause in the spring of 2023 drove consumer confidence higher, pushing up sales activity this time last year.
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“I expect a similar wave of buyer demand at the first indication that highly-anticipated cuts by the central bank are on the horizon,” Soper said in a statement.
“Buyer behaviour is strongly linked to their confidence that the home they want to buy today will not be less expensive tomorrow. We expect the spring will mark that pivotal moment.”
Some forecasters have called for the Bank of Canada to begin cutting rates in April to give the slow Canadian economy a lift, while others have said June or July are more likely as the central bank looks for confidence inflation will continue to decline all the way to its two per cent target.
The central bank itself has not indicated if and when rate cuts would be coming, though governor Tiff Macklem told reporters last month that conversations at the Bank of Canada have shifted from debating whether interest rates are high enough to how long the central bank needs to keep rates at current levels.
Calls for earlier interest rate cuts were buoyed by a sharper than expected drop in the annual inflation rate for January, coming in at 2.9 per cent.
A release from comparator site LowestRates.ca on Tuesday pointed to a “significant uptick” in pre-approval inquiries for mortgages in recent weeks.
Leah Zlatkin, mortgage broker and expert with LowestRates.ca, said in a statement that fixed-rate mortgages have dipped in recent weeks amid expectations for the Bank of Canada to cut its policy rate.
She said that some buyers may be rushing into the market now to beat the “expected rush when rates finally do go down.”
“We’re likely to see a very busy spring market this year,” Zlatkin said.
Royal LePage also signalled that pre-approval requests through its lending partners have trended up heading into the spring.
According to the survey, 44 per cent of sidelined buyers said they plan to obtain a four-year or five-year fixed-rate mortgage, and 12 per cent said they’d opt for a shorter term. Some 22 per cent said they’d opt for a variable-rate mortgage.
Royal LePage commissioned Leger to conduct an online survey among 1,579 Canadians, 18 years of age or older, via Leger’s online panel, LEO. The data was collected from Jan. 26 to 28, 2024. No margin of error can be associated with a non-probability sample.
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