Are you wondering if now’s the right time to buy a home in Canada? Many people are. After a slow third quarter, Canadian home prices are expected to rise in the final months of 2024.
So, what does this mean for you if you’re thinking about buying a home or investing in property? Let’s break it down and take a closer look at the market trends.
Why Are Home Prices Going Up in Q4?
The third quarter of 2024 was slow for the housing market, with prices only increasing slightly. According to Royal LePage’s latest Home Price Survey, home prices went up by just 1.6% from the previous year. However, they did drop by 1.1% from the second quarter.
Despite this, experts predict that home prices will rise by 5.5% in the last quarter of 2024 compared to last year. What’s driving this increase? Lower interest rates. The Bank of Canada has cut interest rates three times in recent months, bringing the key policy rate to 4.25%. While these cuts didn’t cause an immediate rush of buyers, they’re expected to push more people into the market as the year ends.
How Are Interest Rates Impacting the Market?
If you’ve been keeping an eye on the housing market, you’ve probably heard a lot about interest rates. In September, the Bank of Canada made another rate cut, but unlike in the past, we haven’t seen a quick response from buyers. Why is that?
Phil Soper, CEO of Royal LePage, says it’s because many buyers are playing a “wait-and-see” game. First-time buyers, in particular, are waiting to see how much lower interest rates might go. With home prices staying relatively flat and rates slowly dropping, they don’t feel pressured to buy right now.
However, Soper notes that the market has already picked up in cities like Toronto and Vancouver. And with more interest rate cuts on the horizon, he expects more people to start buying homes in the fourth quarter.
What’s Changing with Mortgage Lending Rules?
Another reason why home prices are expected to rise is the recent change in mortgage lending rules. In September, Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), eased the stress test requirements for uninsured mortgages.
What does that mean for buyers? Essentially, it’s now easier for people to switch mortgage providers, which could increase competition among lenders and make mortgages more accessible.
Soper pointed out that this rule change will likely have a significant impact on cities where the cost of a detached home is between $1 million and $1.5 million. Places like Victoria, British Columbia, and Milton, Ontario, could see more buyers entering the market because of this change.
Will First-Time Buyers Get Back in the Market?
A big question right now is whether first-time buyers will jump back into the housing market. Many of them have been sitting on the sidelines, waiting for interest rates to drop even further. So, will they make a move in the fourth quarter?
According to Royal LePage, it’s likely that more first-time buyers will return to the market soon, but it might not happen right away. With home prices expected to rise and interest rates going down, the financial conditions are becoming more favorable for them.
First-time buyers are sensitive to interest rates, and they’ve been hesitant to buy while rates were high. Now that rates are falling, they may start to feel more confident about making a purchase.
What About Small Investors?
Small investors also play a key role in the Canadian housing market. These investors usually buy condos to rent out, but many have been hesitant to invest because high interest rates made it hard to cover costs.
In many cases, the carrying costs for investment properties have been higher than the rental income, making it financially difficult for small investors. However, with interest rates expected to drop further, more investors might see an opportunity to get back into the market.
As rates go down, the costs of owning rental properties will become more manageable, and this could lead to more demand for condos and investment properties in the coming months.
Regional Differences: Not All Markets Are the Same
It’s important to note that not all regions in Canada are experiencing the same market conditions. For example, while cities like Vancouver and Toronto saw a slow summer followed by an uptick in activity, other regions have remained relatively stable.
Royal LePage’s survey found that 38% of regional markets saw price gains in the third quarter compared to the second quarter. This means that some areas are already seeing a recovery, while others are still catching up.
According to experts, this uneven recovery will likely smooth out in the coming months. While the fourth quarter is usually a slower time for real estate, Soper believes we’ll see a stronger market recovery in early 2025. So, while there are some differences from region to region, the overall trend is looking positive.
What Does This Mean for You?
So, what should you do if you’re thinking about buying a home or investing in real estate? The expected rise in home prices means that the market could become more competitive in the fourth quarter of 2024.
If you’re a first-time buyer, it might be a good time to start looking seriously at your options. Interest rates are falling, and new mortgage lending rules are making it easier for some buyers to get financing. If you’ve been waiting for the right moment, now could be it.
For investors, the market conditions are also becoming more favorable. As interest rates continue to drop, the financials of owning investment properties will become more attractive. This could be a good time to consider buying a condo or other rental property, especially if you’ve been hesitant in recent months.
Is Now the Right Time to Buy?
As we move into the last quarter of 2024, it’s clear that the Canadian housing market is changing. Home prices are expected to rise, driven by lower interest rates and changes to mortgage lending rules.
If you’re in the market for a home, now might be the time to take action. Prices are expected to go up, and interest rates are expected to keep falling. Whether you’re a first-time buyer or an investor, the window of opportunity might not stay open for long.