Strong start to home sales in 2024 unlikely to delay BoC rate cuts: economists

A surge in home sales across Canada’s largest markets to kick off 2024 is unlikely to prompt the Bank of Canada to delay its probable interest rate cuts later this year.

The start of the year has shown signs of a rebound in some major housing markets, including in the Greater Toronto Area, where home sales soared 37 per cent in January compared with the same month a year ago.

Last month’s 4,223 home sales also marked a 22.9 per cent month-over-month increase from December, according to data released Tuesday by the Toronto Regional Real Estate Board. It credited lower borrowing costs associated with fixed-rate mortgages that lured some buyers back to the market.

Other local real estate boards have also reported year-over-year increases in home sales activity last month: Vancouver sales jumped by 38.5 per cent, Calgary, by 37.7 per cent, and Montreal, at 18 per cent.

“Clearly, the mood in the market is starting to improve,” said Benjamin Tal, deputy chief economist at CIBC Capital Markets.

“The market is starting to internalize that interest rates have peaked.”

Tal said the main outstanding question is whether sellers will respond to renewed demand. If the housing market sees improvement in the number of new listings, this would prevent prices from rising too quickly over the next six months.

But TRREB chief market analyst Jason Mercer predicted that once the Bank of Canada starts cutting its key rate from the current five per cent level, likely in the second half of 2024, more competition between buyers amid constrained supply will push prices higher.

Jessica Hammell, a broker who focuses on downtown and midtown Toronto properties for Real Broker Ontario, said many prospective buyers aren’t waiting for better borrowing conditions to make their move.

“Even the promise of rates coming down in the near future has definitely helped people feel more comfortable taking action,” she said.

“I think buyers are savvy now. They know that when things start trending down with rates, prices are going to come back up. They’re seeing this opportunity and they’re seizing it.”

Greater Toronto hasn’t seen new listings keep pace with homebuyer activity, increasing just 6.1 per cent annually last month and contributing to a tighter market, TRREB said. The average home price dropped one per cent from the same time last year to $1,026,703, which was also a 5.4 per cent decrease from the final month of 2023.

New listings have also lagged behind sales in Vancouver, where they were 9.1 per cent below the 10-year seasonal average last month, and in Calgary, where inventory remains near record lows.

The Bank of Canada has expressed caution about the potential effect on the housing market should it move too quickly to lower its policy rate.

In a summary of governing council deliberations that led to December’s decision to hold the rate steady, members said easing financial conditions prematurely could prompt a rebound for Canada’s housing market, further fuelling inflationary pressures.

“The Bank of Canada is of course paying attention to demand-supply conditions, but at this point we’re not in a territory … where the market might start to be a bit heated and therefore generating price increases that could be problematic for the bank,” said RBC assistant chief economist Robert Hogue.

“I don’t think what we’re seeing right now is necessarily a red flag for the bank to start to change its signals for the market.”

Hogue said activity levels will likely remain status quo until the forecasted mid-year rate cut, which he said will need to happen in order “for this kind of emerging recovery to be sustained.”

“The broader recovery, in our view, is more going to unfold over the second half of this year,” he said.

In the Toronto area, sales were up across all housing categories on an annual basis last month, led by townhouses at 54.5 per cent and semi-detached homes at 42.9 per cent. The number of condominiums that changed hands was 41 per cent higher than a year ago, as detached home sales rose 27 per cent.

Amid elevated demand, Hammell, said “it’s not a time to sit and wait and see what happens” for those considering a home purchase.

“It definitely behooves people to start at least making plans, like evaluating their personal circumstances, getting that pre-approval to see where they stand and taking calculated action,” she said.