Canadians may have become used to unprecedented irregularity in the real estate market, but things may be headed toward normal conditions next year, according to Royal LePage.
Its Market Survey Forecast reports that in Q4 of 2024, the aggregate home price will increase by 5.5 per cent year over year to $843,684, with the median price of a single-family detached home and condominium increasing by 6 per cent and 5 per cent to $879,164 and $616,140, respectively.
Looking ahead, we see 2024 as an important tipping point for the national economy as the majority of Canadians acknowledge that the ultra-low interest rate era is dead and gone. We believe that the ‘great adjustment’ to tolerable, mid-single-digit borrowing costs will have a firm grip on our collective consciousness after only modest rate cuts by the Bank of Canada.
Home prices to rise in all Canadian markets, Calgary in the lead
The company expects home prices to rise next year across all major Canadian markets, with Calgary set to see the most gains, at 8 per cent. Over 2023’s second half, this city has gone against the trend of falling prices, with rising prices, instead.
They are forecasting that the aggregate home price at the end of next year in the greater regions of Toronto and Montreal to be 6 per cent and 5 per cent, respectively, above 2023’s last quarter. Greater Vancouver is expected to see an increase of 3 per cent.
All depends on Bank of Canada holding back
This forecast is based on the assumption that the Bank of Canada is done with its interest rate hikes and that its key lending rate will stay at 5 per cent over the first half of next year.
Small rate drops are expected in late summer or fall of 2024, and several financial institutions are already offering fixed-rate mortgage discounts.
For the last year, many Canadians have been fixated on the idea of interest rates needing to come down significantly before they can afford to enter or re-enter the housing market. Acceptance that a mortgage rate of 4 to 5 per cent is the new normal should untether pent-up demand as first-time buyers, flush with savings collected during the extended down market in housing, regain the confidence to go home shopping. And, with the return of first-timer demand, we expect families who have put off upgrading their homes to begin to list their properties in much greater numbers.
“Canada’s real estate market has been on a roller coaster ride for the last four years”
During the past year and a half, most of the country’s sales activity has declined, with inventory gradually increasing. Though in some areas transactions are down as much as 20 or 30 per cent, home prices have decreased only modestly at the same time (though are still above 2022 levels), because of simultaneous lower demand as prospective buyers hold out for lower interest rates.
Canada’s real estate market has been on a roller coaster ride for the last four years. A global pandemic briefly brought market activity to a grinding halt in early 2020, followed by a rapid, widespread spike in demand and price appreciation as Canadians sought safety and greater living space in their homes among a world of uncertainty. By the spring of 2022, home prices had reached unprecedented highs, but when interest rates started rising quickly and steeply to combat inflation, the extended market correction began.
Markets take time to adjust. We see a move toward typical home sale transaction levels in 2024, and as the year progresses, appreciating house prices.