For the second time in a row, Canada’s central bank has cut its overnight lending rate. 

In its pre-scheduled July 2024 announcement, the Bank of Canada dropped the target for the overnight lending rate by 25 basis points to 4.50%. 

While inflation remains above the Bank’s 2% target, it is expected that inflation will continue to ease as the global economy expands into 2026, bolstering the Bank’s decision to continue lowering rates. 

In his opening remarks to reporters at a press conference following the announcement, Tiff Macklem, Governor of the Bank of Canada, cited that the risk that inflation continues to grow must be balanced against the risk that the economy and inflation could weaken.

“Looking ahead, we expect inflation to moderate further, though progress over the next year will likely be uneven. This forecast reflects the opposing forces affecting inflation. The overall weakness in the economy is pulling inflation down. At the same time, price pressures in shelter and some other services are holding inflation up,” said Macklem. “We are increasingly confident that the ingredients to bring inflation back to target are in place. But the push-pull of these opposing forces means the decline in inflation will likely be gradual, and there could be setbacks along the way.”

What does a second rate cut mean for homebuyers?

Despite the highly-anticipated rate cut made in June — the first drop to the overnight lending rate in four years — the slight decrease to lending rates last month did not encourage as many homebuyers back to the market as expected. However, with a second consecutive rate cut now in the books, a 50 basis-point-drop to lending rates may coax more homeowner hopefuls to reignite their purchase plans. 

According to a recent Royal LePage survey, conducted by Leger,1 51% of Canadians who put their home buying plans on hold the last two years said they would return to the market when the Bank of Canada reduced its key lending rate. Eighteen percent said they would wait for a cut of 50 to 100 basis points, and 23% said they’d need to see a cut of more than 100 basis points before considering resuming their search.

“Our research shows that many buyer hopefuls have been waiting for a concrete signal from the Bank of Canada that the economy is moving in the right direction. A second cut to the overnight lending rate indicates just that, and with mortgage qualification thresholds continuing to come down, sidelined buyers may have the confidence they need to make their return to the housing market,” said Karen Yolevski, COO of Royal LePage Real Estate Services Ltd. 

“We expect this will prompt a slight boost in activity in the short-term, followed by more robust buyer demand in the fall. In the meantime, some much-needed inventory has been building in major markets over the last few months, giving buyers more options to choose from. In addition to lower rates, this may also encourage more buyers to re-enter the market in the near future.”

The Bank of Canada will make its next announcement on Wednesday, September 4th. 

Read the full July 24th report here.

Nationally, home prices increased 1.5% on a quarterly basis in Q2 despite activity slowdown in major markets

Despite a strong first quarter for sales, Canada’s spring housing market was muted in many regions across the country in Q2 of 2024. Although the first cut to the overnight lending rate by the Bank of Canada in June generated much buzz among Canadians, the long-awaited drop did not translate into a noticeable return of homebuyers to the market. This hesitant approach from purchasers contrasts against rising inventory levels, which has resulted in more balanced market conditions as of late. 

Royal LePage® is forecasting that the aggregate1 price of a home in Canada will increase 9.0% in the fourth quarter of 2024, compared to the same quarter last year. Nationally, home prices are forecast to see continued moderate price appreciation throughout the second half of the year.

“Canada’s housing market is struggling to find a consistent rhythm, as the last three months clearly demonstrated,” said Phil Soper, president and CEO, Royal LePage. “Nationally, home prices rose while the number of properties bought and sold sagged; an unusual dynamic. The silver lining: inventory levels in many regions have climbed materially. This is the closest we’ve been to a balanced market in several years.

“This trend dominates activity in two of the country’s largest and most expensive markets, the greater regions of Toronto and Vancouver, where sales are down yet prices remain sticky,” Soper continued. “There are exceptions. In the prairie provinces and Quebec, low supply and tight competition persist.”

Q2 reports modest uptick in home prices

According to the Royal LePage House Price Survey, the aggregate price of a home in Canada increased 1.9% year over year to $824,300 in the second quarter of 2024. On a quarter-over-quarter basis, the national aggregate home price increased 1.5%, despite a slowdown in activity in the country’s most expensive markets. 

When broken out by housing type, the national median price of a single-family detached home increased 2.2% year over year to $860,600, while the median price of a condominium increased 1.6% year over year to $596,500. On a quarter-over-quarter basis, the median price of a single-family detached home increased 1.8%, while the median price of a condominium increased 0.8%. 

Sustained high interest rates run risk of buyer rush

For the last two years, the national housing market has seen home prices fluctuate between modest declines and increases – with some regional exceptions – as a result of the impacts of higher interest rates. As the Bank of Canada cautiously navigates the delicate balance between lowering the key lending rate and keeping inflation in check, some segments of Canada’s housing market have stalled.

“Canada’s housing market faces pent-up demand after two stifling years of high borrowing costs. While inflation control is crucial, persistently high rates are increasing the risk of a surge in demand when buyers inevitably return. New household formation and immigration keep fueling the need for housing, and a sudden release could create much market instability. This highlights the need for a more nuanced approach that balances inflation control with economic vitality,” added Soper. 

Increased borrowing costs hamper new supply creation

Elevated borrowing rates are not only dampening housing market activity but also stifling the construction of new homes. Builders, who rely heavily on lending, are finding it increasingly difficult to finance new projects, exacerbating the country’s shortage of housing at a time when our population continues to grow.

“Canada’s housing market faces complex challenges. While raising interest rates was crucial to fighting inflation, it has unintentionally choked off the essential flow of new housing supply. Higher borrowing costs, coupled with labour shortages in the construction trades and rising material prices, have made it economically unsustainable for developers to launch new projects. This creates a perfect storm – our population is growing steadily, yet we’re building far fewer homes than what’s needed to meet that demand. This situation urgently needs innovative solutions to ensure Canadians have access to affordable housing options,” concluded Soper.

Read Royal LePage’s second quarter release for national and regional insights. 

Second quarter press release highlights:

• Toronto and Vancouver report slower-than-usual market activity this spring as inventory builds, while demand continues to outpace supply in prairie provinces and Quebec  

• Quebec City records highest year-over-year aggregate price increase (10.4%) in Q2 among report’s major regions

• Royal LePage maintains national year-end forecast with prices expected to increase 9.0% in Q4 2024 over the same period last year 

• According to a Royal LePage survey, conducted by Leger2 earlier this year, 51% of sidelined homebuyers said they would resume their search if interest rates reversed

Despite rising inventory levels, many of Canada’s homebuyers have remained on the sidelines this spring, resulting in more balanced, less feverish market conditions this past month.

According to the latest market report from the Canadian Real Estate Association (CREA), home sales across Canadian MLS Systems dropped 1.7% month-over-month in April, 2024. Actual monthly activity came in 10.1% above the same month last year.

At the same time, the number of newly listed homes increased 2.8% month-over-month in April, 2024. With slower sales and more new listings, the total number of homes on the market jumped by 6.5%, hitting its highest level since just before the onset of the COVID-19 pandemic. This was one of the biggest monthly increases ever recorded, second only to the mass slowdown the market experienced in early 2022.

“After a long hibernation, the spring market is now officially underway. The increase in listings is resulting in the most balanced market conditions we’ve seen at the national level since before the pandemic,” said James Mabey, Chair of CREA’s 2024-2025 Board of Directors, in the monthly report. “Mortgage rates are still high, and it remains difficult for a lot of people to break into the market but, for those who can, it’s the first spring market in some time where they can shop around, take their time and exercise some bargaining power. Given how much demand is out there, it’s hard to say how long it will last.”

With sales down and new listings up in April, the national sales-to-new listings ratio fell to 53.4%, just below the long-term average of 55%. By the end of April, there were 4.2 months of inventory nationwide, up from 3.9 months at the end of March, the highest level since the pandemic began and above the long-term average of five months.

“April 2023 was characterized by a surge of buyers re-entering a market with new listings at 20-year lows, whereas this spring thus far has been the opposite, with a healthier number of properties to choose from but less enthusiasm on the demand side,” said Shaun Cathcart, CREA’s Senior Economist.

The actual national average home price was $703,446 in April of 2024, down 1.8% from the same month last year. The National Composite MLS Home Price Index (HPI) was unchanged from March to April, marking the third month of stable prices. Regionally, prices are mostly flat across the country, except in Calgary, Edmonton, and Saskatoon, where they’ve been steadily rising since the beginning of last year.

With a new year now underway, Canadians can expect to see a variety of changes coming to federal, provincial and local government housing legislation in 2024. 

From updated taxes to revised urban planning regulations, new housing laws and policies will roll out across the country in the coming months. Several of these policies promise to boost much-needed housing supply, which remains at a critical shortage in both the resale and rental segments.  

Here are the new housing policies that you should know about in 2024. 

Federal Policies

Short-term Rental Restrictions

In November, 2023, the Government of Canada unveiled its 2023 Fall Economic Statement, which details new tax, spending and inventory-boosting measures. This includes new efforts to incentivise short-term rental operators to return properties to the long-term housing market. Going forward, income tax deductions will be denied in cases where short-term rental owners are not compliant with provincial or municipal licensing, permitting or registration requirements. This applies to all expenses incurred on or after January 1st, 2024.

You can read more details from the 2023 Fall Economic Statement here. 

Pre-approved Home Design Catalogue

To boost construction of new home supply, the federal government intends to revive a post-Second World War housing policy of standardized, pre-approved home designs, making it easier and faster for developers to build new properties. The modern version of the catalogue will focus on creating blueprints for a variety of low-rise housing, and potentially higher-density homes and different forms of building construction, such as modular and prefabricated homes. 

Consultations for the home catalogue are expected to start in January, 2024.

British Columbia 

New Short-term Rental Housing By-laws

In late 2023, the provincial government introduced the Short-Term Rental Accommodations Act which imposes stricter regulations and enforcement on short-term rental housing. As of May 1st, 2024, the Act will require short-term rental hosts to display a valid business licence number on their listing in regions where a licence is required by the local government. Short-term rentals will be limited to the host’s principal residence, plus one secondary suite or accessory dwelling unit, in select communities. 

Additionally, protections for ‘non-conforming use of property’ will no longer apply to short-term rentals. Later in the year, the British Columbia government will implement a short-term rental registry, and require rental platforms to share data with the Province. 

Expanded Speculation and Vacancy Tax

The province has expanded its existing speculation and vacancy tax laws to 13 new communities, including Penticton, Courtenay and Kamloops. Homeowners in applicable regions will be required to declare how they used their property in 2024 for the first time in January, 2025. 

Introduced in 2018, the speculation and vacancy tax is 2% for individuals who don’t pay the majority of their taxes in Canada, or 0.5% for Canadian citizens or permanent residents who pay the majority of their taxes in the country. 

Updated Zoning Rules

New zoning laws are under consideration to deliver more small-scale, multi-unit housing across British Columbia. Under the proposed legislation, one secondary suite or one laneway home will be permitted in all communities throughout the province. In most areas within municipalities of more than 5,000 people, by-laws will also be adapted to allow three to four units on lots currently zoned exclusively for single-family or duplex residential, and permit six units on larger lots close to transit stops with frequent service.

Additionally, the new zoning rules would require municipalities to update community plans and zoning by-laws on a regular basis to ensure that there is enough housing for current and future residents. Changes to zoning by-laws will roll out across 2024. 

Alberta

Interest on Security Deposits

Alberta landlords will be required to pay annual interest on security deposits they receive from their tenants. Effective January 1st, 2024, the interest rate payable on security deposits will be set at 1.6% under the Residential Tenancies Act and Mobile Home Sites Tenancies Act. Previously, security deposits did not incur interest. 

Toronto

New Luxury Home Tax

Effective January 1st, 2024, the City of Toronto will enforce graduated Municipal Land Transfer Tax thresholds for high value residential properties. Previously, homes valued at $2 million or more would be subject to a MLTT rate, which is currently set at 2.5%. Going forward, additional thresholds have been established for homes priced between $3 million and $20 million, with the new rates set incrementally higher based on the value of the home. 

Legalization of Rooming Houses

Otherwise known as multi-tenant homes, rooming houses will become legal in the City of Toronto starting March 31st, 2024, along with new regulations. Previously, rooming houses were not legal in some areas of the city. Under the new framework, Toronto rooming houses will be limited to a maximum number of rooms and parking, licensing requirements, and will be required to follow a compliance program. A multi-tenant house is defined as a building with four or more rooms that may have a shared washroom and kitchen.

Increase in Vacant Home Tax Rates 

In 2023, Toronto introduced its first ever Vacant Home Tax (VHT), which requires homeowners to declare the occupancy status of their residence to the municipality each year. The VHT was implemented to increase housing supply in Toronto by encouraging the conversion of empty properties into occupied homes.

The VHT has been increased from 1% to 3% for the 2024 taxation year, which will become payable in 2025.

Fourth quarter highlights: 

• National aggregate home price increased 4.3% year over year in Q4 2023; decreased 1.7% quarter over quarter

• Aggregate home price in greater regions of Toronto, Montreal and Vancouver posted gains of 5.1%, 4.1% and 2.7% year over year, respectively, in final quarter of 2023

• Among report’s major regions, Calgary recorded highest year over year price appreciation (10.7%); only major region to post quarterly price gains in Q4 2023 (1.5% over Q3)

• 81% of regional markets posted a quarter-over-quarter decline

• Approximately 2.2 million mortgages in Canada will be renewing over the next two years, most at a much higher interest rate

• National aggregate home price expected to rise 5.5% year over year in Q4 of 2024

Interest rates and mortgage renewals

In December, the Bank of Canada once again held its key lending rate steady at 5.0 per cent.[3] The central bank has indicated that it has likely concluded its interest rate increase campaign, and it is widely expected to make modest cuts later this year. Meanwhile, several major financial institutions have already begun offering discounts on fixed-rate mortgages as bond yields decline.

“The Bank of Canada governing council will soon face the difficult task of trying to balance the lowering of interest rates without simultaneously stimulating spending, which would cause inflation to rise again,” said Soper.

In November, the Consumer Price Index (CPI) rose 3.1 per cent on a year-over-year basis, matching the increase in October.[4] If mortgage interest costs are taken out of the CPI calculation, inflation sits at 2.2 per cent, close to the Bank of Canada’s target rate.[5]

“In Canada, we purchase homes with short-term mortgages of five years or less, in contrast to the situation in the U.S. where much longer 30-year terms are the norm. In a typical year, 25 per cent of our mortgages turn over. Consequently, during the period from 2023 to 2025, most homeowners in Canada will have transitioned to higher mid-single-digit borrowing. We will be required to adapt quickly, positioning our industry on a path to recovery more quickly than in the U.S. where the prospect of losing a below-market rate will act as a deterrent to moving.”

In 2024 and 2025, nearly half (45%) of all outstanding mortgages in the country will be up for renewal, according to the Canada Mortgage and Housing Corporation (CMHC).[6] That’s about 2.2 million households that will be renewing their mortgages, most at a much higher rate.

“Similar to what we witnessed last spring, when the Bank of Canada paused rates for the first time in a year causing sales activity and prices to increase almost immediately, the first sign of rate cuts – even if only by 25 basis points – could create a flurry of activity in the real estate market,  releasing pent-up demand. Those who have been holding off listing their homes will follow close behind.”

Forecast

In December, Royal LePage issued its 2024 Market Survey Forecast, projecting that the aggregate price of a home in Canada will increase 5.5 per cent in the fourth quarter of 2024, compared to the same quarter in 2023.

Nationally, home prices are forecast to see modest quarterly gains in the first six months of 2024, with more considerable increases expected in the second half of the year, due to a boost in activity following a widely anticipated series of interest rate cuts by the Bank of Canada.

Royal LePage’s forecast is based on the prediction that the Bank of Canada has concluded its interest rate hike campaign and that the key lending rate will hold steady at five per cent through the first part of 2024.

Greater Vancouver 

The aggregate price of a home in Greater Vancouver increased 2.7 per cent to $1,220,100 year over year in the fourth quarter of 2023. On a quarterly basis, the aggregate price of a home in the region remained relatively flat, decreasing by 0.7 per cent.

Broken out by housing type, the median price of a single-family detached home increased 5.4 per cent year over year to $1,731,900 in the fourth quarter of 2023, while the median price of a condominium increased 4.2 per cent to $762,600 during the same period.

“The last few months of 2023 concluded much as expected: a generally quiet period but not without some last-minute transactions being completed before the end of the year. Overall, sales activity and prices in the fourth quarter were consistent with the fall, and despite the typical seasonal slowdown, home prices in Greater Vancouver have remained stable,” said Randy Ryalls, general manager, Royal LePage Sterling Realty. “There remains a significant amount of pent-up demand from homebuyers waiting to return to the marketplace. It’s simply a question of when, a factor that hinges on the trajectory of lending rates.”

In the city of Vancouver, the aggregate price of a home increased 3.4 per cent year over year to $1,391,700 in the fourth quarter of 2023. During the same period, the median price of a single-family detached home increased 8.1 per cent to $2,244,200, while the median price of a condominium increased 5.5 per cent to $827,900.

“Looking ahead, we could see a brisk spring market, especially if fixed-rate loans continue to trend downward. This will spur significant activity,” noted Ryalls. “If we see the Bank of Canada begin to cut interest rates early in the year, competition among buyers could heat up quickly.”

Ryalls added that a significant boost in inventory will be needed to meet the demands of buyers coming off the sidelines.

In December, Royal LePage issued a forecast projecting that the aggregate price of a home in Greater Vancouver will increase 3.0 per cent in the fourth quarter of 2024, compared to the same quarter in 2023.

[1] Aggregate prices are calculated using a weighted average of the median values of all housing types collected. Data is provided by RPS Real Property Solutions and includes both resale and new build.

[2] Canadian Real Estate Association

[3] Bank of Canada maintains policy rate, continues quantitative tightening, December 6, 2023

[4] Consumer Price Index, November 2023, December 19, 2023

[5] Statistics Canada. Table 18-10-0004-13  Consumer Price Index by product group, monthly, percentage change, not seasonally adjusted, Canada, provinces, Whitehorse, Yellowknife and Iqaluit, December 19, 2023

[6] Rising rates on homeowners and the shocks that lie ahead, November 9, 2023

[7]  Centris, Active listings for the month of December, from 2014 to 2023, Montreal Metropolitan Area.

If you have any questions about real estate from home evaluations to mortgages to searching for properties in your area, don't hesitate to contact  Jean and Shelly today!