Is Canada Headed for Another Homebuying Frenzy?

For now, the Canadian housing market remains relatively quiet, but there are early signs of life ahead of the historically busy spring buying season.

By Josh Sherman | 3 minute read

“The market can still generally be best described as slow,” says one economist.

With hints of a spring thaw emerging, it’s only a matter of time before a wave of homebuyers step off the sidelines and dip their toes into the real estate market — at least that’s what a recent report from one of Canada’s biggest banks suggests.

“It may be the unusually mild weather or the modest drop in fixed mortgage rates since November—or both—but Canadian house hunters have more energy this winter. Importantly, they’re landing more deals,” writes Robert Hogue, assistant chief economist at RBC, in the report. Hogue notes that Canadian home sales have increased in back-to-back months, most recently by 3.7% in January over December 2023.

In recent years, house hunters and homeowners have been facing the highest borrowing costs in decades as interest rates have steadily climbed (thanks, inflation). That crimped home sales considerably as it has been tougher to qualify for a mortgage and more expensive to make monthly payments. But with the Bank of Canada recently pausing its cycle of hikes to the overnight rate, which influences the mortgage market,  Hogue sees newfound signs of life for the housing market nationally. “The upturn suggests that the sharp correction triggered by soaring interest rates has likely run its course,” he notes of the January and December upticks in sales.

Of course, a lot depends on how the interest-rate environment continues to evolve. “We think a pivot towards rate cuts mid-year will get the wheels turning faster over the second half—perhaps even sooner,” writes Hogue. “There will be a lot of pent-up demand to satisfy once confidence returns, which could heat things up in a hurry,” he continues. Hogue’s comments are similar to what other experts have told Wahi recently. In sum, these experts warn homebuyers who are waiting for borrowing costs to come down that they might miss the boat: the market could heat up fast if the Bank of Canada begins slashing the overnight rate this year, and the higher home prices that could result from bidding wars would outweigh any savings on mortgage payments.

For now, though, “the market can still generally be best described as slow,” according to Hogue. As for prices today, he notes that they are still declining. The index price of a Canadian home was down 1.2% in January, compared to December 2023, and has tumbled 5% since this past August. “Most local markets recorded price drops between December and January including Vancouver, Winnipeg, Toronto, Hamilton, Ottawa, Montreal, Moncton and Halifax,” says Hogue, highlighting Calgary as an outlier. “The huge loss of affordability during the pandemic remains the dominant force weighing on property values,” Hogue adds.