Buyer demand for homes remains strong in Canada despite borrowing rate hikes

A new report from real estate company Royal LePage has found that buyer demand for homes is remaining strong in Canada despite borrowing rate hikes — and themarket may be stabilizingafter the pandemic boom.

Real-estate company Royal LePage released its latest House Price Survey report on Thursday, which predicts the market may beclose to recoveringfrom pandemic ups and downs.

However, the report noted that an ongoing housing shortage in the country will continue to be a problem, advising that governments step up to spur on more development, particularly in affordable housing.

Prices remain flat

According to the report, the aggregate price of a home in Canada remained almost flat compared to last year in the second quarter of 2023, dropping just 0.7 per cent to $809,200.

Real estate experts believe that this very slight decrease signals the market may be close to recovering from 2022's post-pandemic market correction. However, the second quarter actually saw an increase compared to the previous quarter, rising by four per cent.

Compared to the peak of pricing last year, in the first quarter of 2022, the aggregate pricing of a home now sits 5.6 per cent lower.

Prices are set to remain relatively flat for the next six months, and then spike in the final quarter of 2023 around 8.5 per cent higher than the final quarter of 2022.

"Despite the central bank's decision to start raising interest rates again, many buyers are still in the game. Demand remains strong, particularly among those who have secured a rate hold," Phil Soper, president and CEO of Royal LePage, said in a press release. "Buyers who are determined to make a purchase this year have accepted the reality of higher initial carrying costs, rationally surmising that rates are at or near peak and will become more affordable before long."

Market correction

He added those who purchased homes "at the tail end of the pandemic-field real estate boom" saw the value of their homes drop during the market correction that followed — but now prices have steadied enough that those homeowners would likely be able to resell today without significant loss.

"We are close to that pivotal point where people who purchased at the peak would break even if they sold today," he said.

The national median price of a single-family detached home has fallen by two per cent to $841,900 compared to last year, while the median price of a condominium remained nearly flat year-over-year, decreasing just 0.4 per cent to $586,900. That marks a 4.1 per cent and a 2.7 per cent rise in price compared to the first quarter of 2023.

Royal LePage's data is compiled from property data in 62 of the nation's largest real estate markets. Their pricing data, which includes resale and new build homes, is provided by RPS Real Property Solutions, Royal LePage's sister company, which does real estate valuation.

The price of a home in the Greater Toronto Area (GTA) increased slightly in the second quarter of 2023, but is still seven per cent lower than the peak of 2022. Prices also remain 6.9 per cent lower than 2022’s peak in Greater Vancouver, the country's most expensive market.

In the GTA, the aggregate price of a home is currently around $1,180,400. The report predicted that this could increase by 11 per cent by the end of the year, compared to prices in the fourth quarter of 2022.

In the Vancouver area, the aggregate price of a home is $1,274,000 in the second quarter of 2023.

Some trepidation about interest rates

"The market is returning to normal seasonal trends, although there is some trepidation about interest rates," Randy Ryalls, general manager, Royal LePage Sterling Realty, said in the release. "Buyers who have secured lending at the current rate - and thus would not be immediately affected by the latest rate hike - want to make a purchase as soon as possible. But, if we see another interest rate hike or two, some would-be buyers will pull out of the market entirely. Some may be forced to sell their homes if they can’t afford a mortgage renewal at the higher rate; they may have to rent or move to a more affordable region."

Out of the cities that the report looked at more closely, Edmonton is predicted to have the smallest increase in housing prices during the fourth quarter of 2023, with the report predicting only a four per cent increase by the end of the year.

"With interest rate increases now smaller and more incremental, I don't imagine any additional hikes this year will have a significant impact on home prices. 2023 will likely conclude with near-flat price growth," Tom Shearer, broker and owner, Royal LePage Noralta Real Estate, said in the release.

House prices increasing

Around one-third of the regions in the report showed house prices increasing in the second quarter of 2023, with four regions reporting decreases.

"Across Canada, a return to pre-pandemic levels of demand, and the continued lack of supply, has been applying upward pressure on prices once again," Soper said.

The lack of housing options is a problem. Many sellers are hesitant to list, the report said. Meanwhile, the cost of rent continues to soar.

"In some cities, paying rent has become as expensive as making a monthly mortgage payment," Soper said.

This means that many young people are unable to build up the savings necessary to make a down payment and enter the housing market as homeowners, he said — a pattern that spells further doom for the housing market if it continues.

Affordable buildings

"It is essential that our governments increase support for the development of affordable, purpose-built rental buildings, especially in cities like Toronto and Vancouver, where it is becoming increasingly unaffordable for young people to establish themselves without financial help."

Although buyer interest remains despite interest rate hikes, some buyers were "pushed to the sidelines indefinitely," Soper said.

"Economic uncertainty has caused some potential sellers to reevaluate their plans as well. The worry that they will be unable to find the move-up home they need in today's tight market is a major concern," he added. "Fewer sellers mean fewer listings, which adds further pressure to our chronic shortage of inventory. Access to affordable housing in Canada will continue to be a major social issue."