“Market reaction [to the rate cuts] so far it has been largely muted,” wrote RBC senior assistant economist Robert Hogue, in the bank's latest economic report on housing. “Deep reductions in prices will be needed to stimulate demand in a tangible way, as consumers continue to face high ownership costs and unaffordability.”
With more rate cuts expected before the end of the year, MoneySense asked four experts to share their thoughts on whether it's a good time to buy a home in Canada. Will improved mortgage affordability boost demand and lead to higher home prices? What other economic issues are there? And how are high housing costs affecting different groups of Canadians, from first-time home buyers to retirees looking to downsize? Let's see what the experts have to say, and what Canadians can expect.
(Interviews are edited for length and clarity.)
Is this a good time to buy a home in Canada?
An economist's view:
David-Alexandre Brassard, MA, BA, is the chief economist of CPA Canada, which provides financial information to Canadians.
You won't like my answer: Now is as good a time as any. Because interest rates are starting to drop, [mortgage rates] it may be reduced faster than we thought. That's what most economists settle for. On the other hand, that means the economy is doing worse than we thought. Interest rates are forward looking. Lending institutions have economists, like me, who predict and estimate future interest rates. What they have on the cards is that prices will continue to fall until the end of 2025.
So, your question boils down to: Will mortgage affordability improve in Canada? I don't believe it will happen. What we've seen in Toronto and Vancouver in particular is that there's a lot of the domestic economy tied up in housing. In 2019, that was already around 46% to 47% of the total. At that time, across Canada, it was closer to 34%. Over time, more and more of our wealth is invested in our homes. And there are two problems with this: first, what you put in your home, you don't put in your retirement; and secondly, there is not much room for appreciation in house prices.
If you look at the price-to-income ratio across Canada, it's now 8x. So, in reality, if you're a two-income family, the house will still be four times higher than what you both bring in. If you're looking at Vancouver and Toronto, it's between 11 and 12 times.
As interest rates decrease over time, banks will allow households to borrow less because of costs [of borrowing] he goes down. And with the gap between housing demand and supply, prices are likely to rise. It's crazy to think that we went from 0.25% to 5%, and saw prices drop from 10% to 15%. This means that there is a problem with housing supply.
I've been saying this for the past few months, but we don't have an “inflation problem” for the past eight months, we have a “housing” problem that is causing inflation on its own.
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