Interest rates will continue to dictate the outcome of Canada’s housing market in 2024 with the first and second halves showing different pictures. We expect slow activity and softer prices to persist in the early part of the year as the Bank of Canada maintains its policy rate at a two-decade high and home ownership stays out of reach for many potential buyers. But, a pivot toward rate cuts mid-year will get the wheels turning faster over the second half or perhaps even sooner. There will be a lot of pent-up demand to satisfy in the market once confidence returns, which could heat things up in a hurry. However, poor affordability conditions will restrain the recovery and make it a gradual liftoff. The larger window of opportunity for buyers is likely to open only after interest rates have dropped materially—something we foresee in the latter stages of 2024 or into 2025. That’s especially the case for first-time buyers who may be more financially constrained.

Upside for supply

Improving sales prospects are bound to attract more sellers. Mortgage renewal payment shocks could also prompt more owners to put properties on the market. An influx of sellers would keep supply-demand conditions in balance, and temper any upward pressure on demand. For-sale inventories have been rebuilding over the past couple of years after reaching historical lows earlier in the pandemic.

Market to be a little busier in 2024

We project home resales in Canada to rebound 9.2% year-over-year to 484,400 units in 2024—partially reversing massive declines of 25.1% in 2022 and 11.1% in 2023. That number of transactions would still fall short of the level reached before the pandemic in 2019 (490,900 units). We expect the recovery to strengthen in 2025 to 562,100 units—a gain of 16%.

More ground to recover in B.C. and Ontario

The housing market varies considerably across the country and this is unlikely to change in the year ahead. Crushing home ownership costs have significantly depressed home resales in British Columbia and Ontario. There isn’t much more vigour in Quebec. But other provincial markets have been broadly resilient. Activity remains near or above pre-pandemic levels in Alberta, Saskatchewan, Manitoba and most of Atlantic Canada.

Rebound already taking shape in Alberta and Saskatchewan

We expect lower interest rates in the second half of 2024 to lift activity from coast to coast. A market uptrend is in fact already taking shape in Alberta and Saskatchewan—setting both up for above-average resales growth this year of 13.5% and 9.4%, respectively.

Broader strengthening in second half

Other provinces are likely to turn a corner by the summer. We forecast residential transactions to rebound modestly this year in B.C. (6.4%) and Ontario (7.7%). It will be even more robust east of Ontario with growth rates as high as 15.8% in Prince Edward Island, 15.5% in Nova Scotia and 10.2% in Quebec. We think it will take bigger rate cuts or deeper price drops to make a meaningful difference for buyers in expensive markets.

No quick turnaround for prices

Our outlook for prices calls for the national RPS Home Price Index (HPI) to ease further by 1.0% this year, following a 2.6% decline in 2023. We see the market turnaround having a greater impact in 2025 when the HPI is forecast to rise 3.1%. In this scenario, the national index would remain below its 2022 peak throughout the two-year projection horizon.

Provinces at different points of price cycle

Home prices across the provinces will run the gamut this year. We project gains in Alberta (2.2%), New Brunswick (0.7%), Nova Scotia (0.2%) and Saskatchewan (0.1%). But, there will be losses in Ontario (-2.0%), Manitoba (-1.8%), Newfoundland and Labrador (-0.6%), B.C. (-0.3%) and Quebec (-0.2%). No change is expected for P.E.I.

Next year looks more uniform with moderate price advances projected in every province.

Booming population vs. poor affordability

Major forces are working in opposite directions in the housing market. On one side, booming population growth sustains strong underlying demand for homes (including rentals). On the other end, high housing costs restrict many Canadians’ path to homeownership. In 2024, that path is likely to widen once interest rates fall meaningfully. The severe loss of affordability—arising from soaring prices earlier in the pandemic and the run-up in interest rates since March 2022—has been the dominant force in the past two years plunging the market into a deep correction and causing a significant buildup in pent-up demand.

We believe the federal government’s recent decision to cap the issuance of study permits to international students for two years will have a marginal impact on overall homebuyer demand in Canada. But pressure on local rental markets near post-secondary institutions in Ontario and B.C. could ease as a result.

Mortgage renewal payment shock

Steep payment increases that await fixed-rate mortgage holders at term renewal will hit many Canadians hard. These increases could be too much for some owners who may have to sell. But we see the risk of a wave of distressed sellers as contained. Most mortgage holders have been stringently stress-tested against a spike in rate—qualifying at a rate at least 2 percentage points above the rate they received—at origination. Indeed, this prudent factor has significantly contributed to maintaining mortgage delinquencies at a historical low in this country to date. In any case, for-sale inventories have plenty of room to rise before they reach problematic levels.

Homebuilding key to longer-term balance

While we don’t expect the current booming rate of population growth to be sustained, demographic factors are likely to remain strong for the foreseeable future in Canada. They could easily heat up the housing market to an uncomfortable degree again once the cyclical downturn has run its course. Whether it happens will come down to the supply response. We estimate Canada will need to grow its housing stock by an average of 315,000 units every year between now and 2030 just to keep up with household formation. That’s more than a third above the pace of housing completions in the past few years (which ranged between 220,000 and 240,000 units annually). Needless to say it’s a tall order, especially considering the labour challenges the construction industry is facing.

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Robert Hogue is an Assistant Chief Economist at RBC responsible for providing analysis and forecasts on the Canadian housing market and provincial economies. He joined RBC in 2008.

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