Hopes that falling interest rates will help improve housing affordability likely will not be realized. A new survey by Royal Lepage suggests pent-up demand is high, while the real estate stats show housing supply remains low.
Two years ago, this month, the Bank of Canada started a fast and steep run up in its key overnight lending rate as it tried to knock down rapidly rising inflation. None the less, real estate continued to attract interest with more than a quarter of the country’s adult population (27%) active in the market. However more than half of those people say they had to put their house hunting on hold because of the higher rates.
Now, the fight against inflation appears to be working. The Consumer Price Index showed a 2.9% annualized increase in January, bringing it back inside the central bank’s target range of 1.0% to 3.0%. Expectations for a rate cut later this year are wide spread and buyers seem ready to pounce.
According to the Royal Lepage survey, half (51%) of those who say they put their home purchase plans on hold, now say they will re-enter the market if rates drop. A decline of just 25 basis points (one-quarter of one percent) would be enough to bring 10% of those people back, while 23% need to see a drop of more than 100 bps (more than a full percentage point) before they step off the sidelines.
The latest figures from the Canadian Real Estate Association show a continuing shortage of homes for sale. The sales-to-new listings ratio was nearly 59% in January. That is markedly tighter than the 50% reading just 3-months earlier, and tighter than the long-term average of 55%.