Purchase price remains most important for stalled homebuyers

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As economists signal another interest rate cut is on the horizon, a new survey suggests the real estate market might still have a muted reaction.

A report from online realtor Zoocasa found that purchase price is still the most important factor for 58 per cent of prospective homebuyers, suggesting that if the Bank of Canada cuts rates next week it is unlikely to bring these shoppers back to the market.

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According to the Canadian Real Estate Association, the average home price fell 1.6 per cent year-over-year in June to $696,179, though Ontario and the Northwest Territories are the only two regions with year-over-year price drops. CREA does not have data for Prince Edward Island and Nunavut.

The monthly mortgage payment ranked the second most important factor in the survey with 26.6 per cent of respondents, followed by home maintenance costs with eight per cent.

After Tuesday’s consumer price index report that showed inflation eased to 2.7 per cent in June, most economists expect the Bank of Canada to cut interest rates to 4.5 per cent on July 24.

But it appears the central bank will need to drop interest rates significantly to have an impact on the housing market.

The survey found just 15.1 per cent of respondents are waiting for one more cut before entering the market, while 31.6 per cent of respondents say they are waiting for significant interest rate cuts.

Twenty-two per cent of respondents said they are not planning to enter the housing market at all this year.

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Interest rates appear to have hit younger Canadians the hardest. Almost 22 per cent of baby boomers said rates would not impact their decision to enter the housing market, compared to 12.2 per cent of gen X and eight per cent of millennials.

“Rising home prices have especially impacted millennials and older gen-Z, who are looking to buy their first homes but are finding themselves priced out of many markets,” Zoocasa chief executive Carrie Lysenko said in the report.

“Although borrowing costs have eased slightly with the first Bank of Canada rate drop in four years this June, this hasn’t been sufficient to counterbalance the affordability challenges. As a result, many potential buyers are forced to reconsider their timing or location for purchasing a home.”

As rates come down and prices remain high, potential homebuyers are divided on when might be the right time to enter the housing market. Just over 40 per cent of respondents said they are unsure if now is the right time, while 11.9 per cent strongly believe that now’s the time and 12.1 per cent strongly disagree.

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“Real estate agents may need to provide more assurance and information to ease any hesitancy,” the report states. “It may now be more necessary than ever for agents to work closely with clients to ensure they feel knowledgeable and comfortable about local market conditions.”

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While the Zoocasa report points to high prices in Canada’s sluggish housing market,  others point to a hangover from the COVID-19-induced home-buying party.

Projections from the Canadian Real Estate Association predict 472,395 homes will be sold in 2024, which is a six per cent climb from last year, but below earlier forecasts and far below the 10-year average.

However, data suggest earlier projections were distorted by interest rate cuts in 2020 and 2021 which led to an estimated 238,000 more transactions.

Read more here.

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