Canada still a homebuyer's market despite interest rate hold, tariffs
Earlier this month, the Bank of Canada held its key interest rate for the second time this year at 2.75 per cent.
If you’re considering moving or buying your first home, you may be wondering when it’s the optimal time to make a down payment.
The Bank of Canada cited heightened political and economic tensions, such as the United States’ tariffs, Canada’s weaker economy, and rising inflation, as reasons for holding the interest rate.
Rates.ca mortgage and real estate expert Victor Tran said this rate hold coincides with one of the slowest periods of the year for home sales in Canada — July and August.
So, what does this mean for homebuyers in Canada? We spoke with Adam Jacobs, head of research at Colliers Canada, about the current state of the housing market and whether it’s worth waiting for deeper interest rate cuts.
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How are home sales doing heading into the summer?
According to the Canadian Real Estate Association (CREA), home sales in the country increased 3.6 per cent between April and May this year, marking the first gain in activity since November.
This bump comes after home sales were stagnant between March and April, but down almost 10 per cent compared to the same time last year.
“It’s only one month of data, and one car doesn’t make a parade, but there is a sense that maybe the expected turnaround in housing activity this year was just delayed for a few months by the initial tariff chaos and uncertainty,” stated CREA senior economist Shaun Cathcart.
Jacobs says the more affordable markets, such as Winnipeg and Saskatoon, are performing well in terms of home sales. On the other hand, he says expensive markets like Toronto and Vancouver have “hit a wall.”
When it comes to the type of property, he notes that single-family home sales are outperforming condominium sales.
“There’s still that demand for the semi or the detached home, whereas the condo market is a little bit more up in the air because of just how many unsold units there are,” he told Daily Hive.
Could homes become more affordable?
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Ratehub’s latest Affordability Report found that in May, it became harder to buy a home in eight out of 13 major housing markets due to rising home prices and recovering sales.
According to the CREA, the average home price in Canada between April and May was $691,299, down 1.8 per cent annually but up 1.9 per cent month-over-month.
Jacobs highlights the struggling condo market, where there’s an oversupply and a lack of demand.
The latest RPS-Wahi Home Price Index revealed that weak condo demand in major cities, such as Toronto and Vancouver, is dragging down Canada’s housing market. It found that the condo market recorded a 6 per cent drop in prices compared to the same period last year.
“Something needs to be worked out between buyers and sellers,” he explained. “The challenge with condos is that the units have gotten so small.”
He says that many prospective buyers, especially families, don’t see value in condos that lack sufficient space for their lifestyle.
“I think if there were an affordable price, a lot of people would want them, but we’re struggling to get to that point,” said Jacobs.
Whereas single-family homes are in high demand with a limited supply, which is why prices continue to increase.
“There are too many people, and there just aren’t that many of them being built. So, supply and demand are still in favour,” added Jacobs.
Should homebuyers in Canada wait for deeper interest rate cuts?
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Several factors could influence a homebuyer’s decision to make a down payment.
Jacobs says that while Canada has experienced seven interest rate cuts in the past year, it has had little effect on the cost of a mortgage.
Ratehub’s report found that mortgage rates have been steady, which means that monthly rates have been largely affected by home prices alone.
“[Interest rates] are tied to the bond market, and it responds to what the Bank of Canada does, but it also responds to supply and demand, risk that people see elsewhere, and the return of other assets,” explained Jacobs.
He adds that Canada is in “unprecedented times,” where the central bank must consider both inflation and a weak economy simultaneously.
“I think people were still expecting a lot more cuts, and then the trade war just threw a massive curveball into everything,” he said.
The head of research at Colliers Canada says that several lenders still believe there will be additional rate cuts. In the worst-case scenario, the bank will maintain the key interest rate at 2.75 per cent for the remainder of the year, he adds.
Despite all of this, Jacobs does say it’s a buyer’s market. He uses Toronto as an example of a market with tens of thousands of unsold condos.
“I think you’re at least in a position as a buyer where you have a lot of options. You don’t necessarily need to get into a bidding war because this is the only thing that’s available in the entire city,” he explained.
However, Ratehub mortgage expert Penelope Graham warns buyers not to wait too long.
“While buyers have enjoyed attractive housing affordability conditions throughout the spring, those days may be numbered,” she stated.
“The latest May national housing data reveals sales are firming up over the short term. Meanwhile, growing geopolitical and fiscal debt concerns have pushed bond yields higher, putting upward pressure on fixed mortgage rates.”
Jacobs adds that there are other options for Canadians who can’t necessarily afford to own a home yet, thanks to a boom in purpose-built rental apartments.
“There are a lot of brand new, purpose-built rental apartments with good locations and a lot of amenities. You don’t have to deal with condo fees or anything,” he said. “There are a lot more of those than there were five or 10 years ago.”
He says these rental apartments also add pressure to the condo market because young professionals with decent salaries may find them more attractive than a condo.