In this edition of Disruptors: The 10-Minute Take, co-host Trinh Theresa Do explores why Canada’s housing market has suddenly cooled after a heated two-year pandemic-driven rise. She’s joined by Robert Hogue, Assistant Chief Economist at RBC Economics, who shares insights and predictions on what’s to come, for both buyers and sellers.


To read Robert’s latest housing report, “Canada’s housing market taps on the brakes as interest rates rise,” click here.

Speaker 1 [00:00:03] Hey, it’s Theresa. Welcome to Disruptors. The 10 minutes where we dive into the latest innovation, tech and economic buzz. For this week’s take, we’re talking about Canada’s housing market, which is starting to cool down after a two year pandemic driven surge. The recent Canadian Real Estate Association, or CREA report showed that tides may be shifting in buyers’ favour. So what should aspiring first time homeowners like myself know if they’re looking to break into the market? And what should sellers be aware of in this changing landscape? To help us better understand how the chaos of the last two years is settling and what’s likely to come, as Robert Hogue, assistant chief economist at RBC Economics, he’s just released his latest monthly report, “Canada’s housing market taps on the brakes as interest rates rise”. Robert, Welcome to the 10 Minute-Take!

Speaker 2 [00:00:56] Hello, Theresa.

Speaker 1 [00:00:57] After the frenzied last couple of years, we’re seeing rising interest rates, predictably finally cooling demand for housing. And I’m seeing the phrase buyer’s market being bandied about across so many different headlines and news outlets. But you’ve been a keen observer of the housing landscape for years now. How would you actually describe what’s going on, especially compared to last year and before the pandemic? What’s the full picture here?

Speaker 2 [00:01:23] Right. We’re starting from a well, from a starting point where the market was in a frenzy. I mean, the last since the summer of 2020, we’ve seen record months after record months in terms of home resale activity. So the starting point is extremely strong now. Should we be talking about a buyer’s market? I think it’s a little premature at this point. Will it become a buyer’s market? It could well be now. That being said, if the market were to become a buyer’s market, would that mean that buyers are finally like yourself? We’ll see great opportunities out there. The thing to keep in mind is that now we are, as you pointed out, at a time when interest rates are rising, mortgage rates are rising, especially that variable rates now are rising, which means from a buyer perspective, prices may kind of stabilize, maybe decline in some markets to a certain degree, but is going to get tougher because borrowing costs are moving up. Now, whether a buyer’s market will represent relief at last for a generation of buyers now, I’m not so sure. But one thing is getting clearer and clearer, though, is that those spiking prices that we’ve seen, especially over the last 12 months, are on the way to stabilizing in most of Canada. And in fact, and as you pointed out, the latest crop of numbers for the month of April is that we’re starting to see some some declines on a month over month basis, and the odds are they’re likely to decline a little bit more. So I think in a way, no, we’re leaving this frenzied market to a new phase of this cycle, which hopefully will bring a little bit kind of a cooler set of conditions, kind of a less of a fear of missing out, hopefully, so that the market will calm a little bit calmer. But don’t expect affordability suddenly to be right in front of us. I think the affordability will continue to be a major challenge.

Speaker 1 [00:03:20] Right. And I mean, affordability was also a driving factor for many of my friends and peers deciding to move to sleepier markets during the pandemic. Nova Scotia. New Brunswick, Alberta. It’s the exodus out of the big cities that are busy economics as covered in depth. So with that in mind, as you look across the country, where are you seeing the most interesting trends or conditions and what’s surprising?

Speaker 2 [00:03:42] You move, right? Right, right. And it’s an excellent point when we’re looking at the numbers for April, for example, you know, we saw Halifax, for example, still seeing huge price increases in a month and four month basis. There’s still tremendous pressure on that market. And and a big part of of that story is exactly what you described. You’ve got some very hot market over the past year where buyers were being priced out. And with the pandemic and no work from home opening new frontiers, we saw some significant movement towards other markets snowy exurbs of, of and Toronto or even cottage country. But we saw also a significant movement towards the Atlantic region where the locals are being a little put off because they’re seeing this this wave of Ontarians coming through with the larger budgets. But that that phenomenon is still ongoing as we speak, along.

Speaker 1 [00:04:33] With interest rates leading to changing conditions. And I know that you mentioned that affordability still remains a challenge. It reminds me of an interesting term I came across in the latest courier report, buyer fatigue. And it’s not something that I’ve heard often. So can you explain to us what that means and how we’re seeing it play out?

Speaker 2 [00:04:49] Now, we’ve been talking a lot about the lack of supply out there, but there was a lack of supply largely because demand was so incredibly strong over the last. Almost two years now. And a big part of that that I just mentioned a minute ago, the fear of missing out. But that that that has driven a lot of activity. A lot of people kind of precipitated that their decisions to lock in lower rates or no to buy at a time before prices were now have gone to high so that they were no basic in buying being priced out of market. And so all of these have led the way to tons of bidding wars which were now very common in large markets like Toronto and Vancouver. But those bidding wars have spread out across the country, and many markets had never really never seen them before. And now this tremendous pressure and frustration on the part of many buyers has led to that and buyer fatigue. Now they’re just like, okay, they’re done with having to try to outbid the competition. And now with a higher mortgage rates, now it’s making them more discouraged about entering those bidding wars. And the odds are we’re probably going to see a few and fewer of them. And when where there are bidding wars are probably going to see fewer participants. So it’s all kind of part of this cooling on the demand side that has basically started this spring.

Speaker 1 [00:06:11] Yeah, I totally understand that. My partner and I have been trying to break into the market for the last year and a half and every time we feel like we had our savings goal, the market just gets a little bit further out of reach. So we gave up and I think that fits the pattern with a lot of folks across Canada. So the federal budget came out just a little while ago and introducing a number of measures to improve affordability, including building more homes and ending blind bidding, among others. How do these policies stack up, particularly now as we’re seeing the effects of higher rates on demand? What does this all mean for buyers?

Speaker 2 [00:06:46] Right. Right. And in our view, is then that individually those measures, I think we counted something like 29 measures of housing related measures in the federal budget, and some of them address the supply side. But a number of them were targeting or trying to help no matter the affordability on the for buyers. And the thing to keep in mind is now some of those measures that were proposed are not effective right now, like a savings account for first time homebuyers. Now the government is stuck in 2023 and it’s a sort of program that will probably have an impact over the longer term. So our view is that individually, they’re probably not likely to to move the needle that much in terms of of affordability or trying to cool the market down. But in aggregate, overall, it could make an impression on buyers. But that being said, the bigger factor in the market right now is higher interest rates, that those interest rates are rising not only fast but a lot, especially on the variable mortgage side. So in our view, this is the game changer that the policy changes and those programs and proposed measures will probably contribute to some extend maybe at the margin. But the big the big one is higher rates. And this is, in our view, that’s leading to the turning point that we’re experiencing now in the market.

Speaker 1 [00:08:14] Hoping to turn over now to the other side of the transaction and looking at sellers. How are they faring right now and what do you think they should be thinking about?

Speaker 2 [00:08:22] I think they have to accept and realize that the market is starting. There’s a lot of expectations on the part of certain buyers that they saw that the neighbors down the street selling their house for one point something million and they’re expecting by putting the market up for sale now that it would fetch the same price, whereas in most of the country that they’re not going to get bids for the prices that prevailed just a few months ago. So maybe the strategies has to be revised. We’re seeing more and more realtors advising their clients now, not don’t set things up for a bidding war. And that’s an asset that an asking price that’s a little bit higher. So I think that they have to be to accept the new realities, to be more flexible, also to realize that they may not sell their home in hours. It may take a little bit of time and, you know, just a bit of a dose of reality when you look back in the history of the housing market and you don’t have to go that far back in most markets, it took like weeks and weeks to sell a home and not days. So I think they’ll have to adjust to this new reality.

Speaker 1 [00:09:21] And a new reality. It definitely is. Thank you for joining us today, Rebecca. I really appreciate your time.

Speaker 2 [00:09:27] It’s been my pleasure.

Speaker 1 [00:09:29] And that’s a wrap for this week’s ten minute take. I’m Teresa Do. Join us next time as we explore innovation and how businesses and governments may have been thinking about it all wrong. We’ll chat with a globally known expert who recently wrote a book on the subject, as well as a winner of this year’s Governor General Innovation Awards. Talk to you soon.

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