Is My Window to Buy a Home in Canada Finally Opening?

Usually, low-interest rates signal that it’s prime time to buy, but in 2021, the rates exacerbated the intense competition, and other factors made the housing market challenging. Many Canadians have been dreaming of purchasing their own home for years, only to be delayed by factors such as low housing inventory and COVID.

Some buyers may find relief in the current changing market conditions. Rising interest rates, a larger inventory level, and a slower sales pace mean that this summer may be a good time to finally buy.

Interest Rates

The Bank of Canada’s interest rate hikes has made their mark on variable and fixed-rate mortgages. Over the past two years, low-interest rates meant significant savings for home buyers, both in monthly mortgage payments and over the length of the loan. Enticingly low rates contribute to the competitive buying frenzies of 2020 and 2021.

However, mortgage rates have been rising steadily since early 2022. Fixed rates have already risen between 2.2% and 4.4% from the record lows of the pandemic, and they are expected to continue growing. Variable rates are not immune to the BoC’s rate hikes either, and they’re also on the rise. 

Home Inventory

In the last two years of this sizzling hot real estate market, the low housing inventory made purchasing a home difficult for many prospective buyers. Due to the low rates, more people could afford to buy, but finding a home and winning the bidding war for it was quite difficult. Many listed homes received multiple offers in a matter of minutes. It’s been a clear seller’s market.

Those days are coming to an end. Supply-demand conditions aren’t quite in buyer’s market territory, but this May, almost three-quarters of Canadian markets were considered balanced based on sales-to-new listings ratios. This means buyers will finally have more time to find a home and consider their options before making an offer.

Home inventory is slowly rising across the country. Conditions vary from coast to coast, but general trends are positive. The number of newly listed homes rose 4.5% in May, led by a supply jump in Montreal. Meanwhile, home sales fell by 8.6%. Experts cite rising interest rates as one of the main factors for these chilly changes. We’re in a period of evolution that should lead to more “normal” conditions, at least as normal as the housing market can be. 

Price Cuts

As mortgage rates rise, homebuying budgets shrink. Eventually, these conditions lead to an overall price correction. RBC Economics predicts Canada’s benchmark price to fall around 10% in the coming year. The most significant price corrections will occur in Canada’s most expensive markets, Ontario and British Columbia, with slightly smaller declines in the rest of the country. 

Home prices started to drop in April and again in May. Although small, these drops mark a significant turning point for Canada’s housing market. In May, the national average home price edged down 0.8%. 

Hopeful shoppers have been patiently waiting for their chance to buy a home. They’ll watch with keen interest to see how rising mortgage rates and growing inventory affect home prices in the coming months. If prices continue on their downward journey, this summer could be an ideal time to re-enter the house hunt.