Canada’s housing market took buyers and sellers on a wild ride over the past few years. Skyrocketing home prices during the pandemic were followed by a sharp decline as interest rates rapidly increased to cool demand.

As 2023 ends, analysts focus on what 2024 may bring for Canadian real estate.

Interest rates key to housing affordability and activity in 2024

The Bank of Canada’s policy rate influences prime mortgage rates and is poised to be one of the most critical factors impacting housing affordability and sales activity next year.

Forecasts of rate cuts fuel housing optimism

After consecutive rate holds through the latter part of 2023, economists widely expect the central bank to begin easing rates at some point in 2024. When that happens, even a slight dip in borrowing costs could spur a wave of housing market activity.

“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,” said Phil Soper, President and CEO of Royal LePage.

Canadians have pent-up housing demand ready to be unleashed when rates fall. Renewed affordability may also motivate move-up buyers to list existing homes for sale to trade up.

Homebuyers eagerly await lower rates.

High rates have many potential buyers stuck on the sidelines, unwilling to jump in while carrying costs are elevated. An Ipsos poll found that 73% of Canadians are holding off on buying or selling due to steep borrowing rates. The barrier is especially sidelining younger millennials, British Columbians, and Quebecers.

“I think we’re going to see consumer confidence increase, at least partially, probably by quarter two realistically. But I think we’re going to start seeing people talking about making those moves again for 2024,” said Vancouver agent Tim Hill.

Bank of Canada rate decisions critical

Economists expect rate cuts to materialize in mid-2024. But the path remains unclear and dependent on inflation and jobs data. Another risk is if the Bank of Canada raises rates again, seeing inflation as too high.

Higher rates for extended periods would constrain housing affordability and activity for longer periods. Yet once cuts commence, housing activity is poised to accelerate.

“Any rate cut will “spur excitement and activity,” said Toronto agent Anne Marie Lorusso. “Buyers will hope the next interest rates will tick down again.”

Pent-up demand expected with lower rates

Combined frustrated buyer demand and hesitant sellers are expected to unleash a wave of housing activity once rates fall to tolerable levels.

Buyers on the sidelines, ready to act

Many current renters are prospective first-timers eager to transition to homeownership once rates improve borrowing power. Move-up buyers have also paused plans, expecting better mortgage terms in 2024.

“We know there are still buyers on the sidelines waiting for interest rates to come down. What is unclear is how many can afford to jump back into the market at the first sign of a reduction, and how many truly cannot afford to transact in this environment,” said Karen Yolevski, Royal LePage.

Sellers are also waiting to list homes.

Listings have declined considerably, as owners unwilling to accept lower prices delay selling. Renewed buyer demand may entice stalled sellers to put houses on the market.

“What’s more, with ultra-low vacancy rates, the rental market is not the escape route many would-be buyers hope it could be, with monthly lease rates on the rise from coast to coast,” said Phil Soper, Royal LePage.

Mass entry could spur bidding wars.

If buyer demand flooding back outstrips limited supply, bidding wars could intensify, driving prices up rapidly. This likelihood has some advising clients to purchase before the rush.

“My cautionary tale for my clients right now is let’s not wait to do what everybody else will do,” said Vancouver agent Tim Hill. “It feels like the Wild West.”

The housing supply shortage persists across Canada.

Despite the projected sales activity and price growth next year, housing inventory needs to grow nationwide and meet targets.

Construction needs to catch up to target needs.

Housing starts are still considered inadequate for population gains from immigration and household formations. And the labor shortage is a barrier to accelerating home building.

“We continue to struggle with a chronic housing supply shortage. According to the Canada Mortgage and Housing Corporation, the country needs about 3.5 million additional housing units by 2030 to restore affordability, with the greatest need concentrated in the provinces of Ontario and British Columbia,” Phil Soper said.

Vacancy rates are low, with high rental demand.

Sky-high rent demand has kept vacancy rates low, increasing lease rates, especially in major city centers. More purpose-built rental construction continues to be a pressing need.

Investor properties adding condo supply

Some investor-owned condominiums purchased for capital gains are now cash-flow negative with higher mortgage renewals. More units being listed may help add affordable apartment inventory to aid first-time buyers.

“This, in addition to new legislation that incentivizes the development of purpose-built rental properties, could add some much-needed inventory to the entry-level market,” said Karen Yolevski, Royal LePage.

Regional housing markets on varied trajectories

While national average home prices are valuable benchmarks, Canada’s housing market picture varies widely from region to region in terms of sales and price trends.

Vancouver and Toronto correction stabilizing

Sale prices have declined significantly for months in Toronto and Vancouver, and there are early signs of finding a floor close to pre-pandemic values in some segments as buyer demand stabilizes.

Montreal market awaiting rate cuts.

Montreal real estate has been subdued heading into winter after flying high for the past few years. But activity is expected to rebound in the spring and summer once buyers react to expected interest rate cuts.

Red hot Calgary housing defiance

Unlike most other major cities, Calgary’s housing market has shown no signs of slowing, even with higher borrowing costs, owing to persistent supply shortages relative to inflows of interprovincial migration.

Halifax anticipating price appreciation.

The balanced Maritime housing market is projected to see renewed buyer demand early next year, driving modest home price increases, significantly if facilitated by central bank rate decreases.

“That could bring more activity and “small increases in prices” over the second half of the year, as he forecasts home prices moving “gradually higher” across all markets,” said RBC’s Nathan Janzen.

The policy promises to target housing affordability.

All levels of government have proclaimed plans and programs to help alleviate Canada’s housing supply shortage and declining affordability. Will election promises become reality in 2024?

Government housing funding flows

Ottawa and provincial administrations have pledged billions in funding commitments to spur new rental builds, purpose-built apartments, and affordable units and accelerate project approvals.

Densification and project streamlining

Efforts are being made to reduce red tape and simplify zoning to make it easier for property owners to add secondary suites while expediting builders’ development timelines for new homes.

Measures to spur purpose-built rentals

Incentives, financing, and legislation changes have been implemented to incentivize more construction of dedicated rental housing to expand availability and improve rental vacancy rates.

Buyer subsidies under consideration

Policy considerations around facilitating first-time homebuyer entry through new government assistance programs will continue to be debated next year.

The path forward for Canadian housing in 2024 contains more twists and turns than a roller coaster ride at the best of times. Savvy buyers may want to take advantage of any temporary market dips in their favor, while budget-conscious borrowers brace for higher interest costs at renewal.

Yet one key takeaway, according to Phil Soper, is that “Canadians need housing, they value home ownership, and most are willing to prioritize buying a home over just about anything else.”

Alternative Financing Options for Homebuyers

As we’ve explored, housing affordability next year largely depends on the trajectory of interest rates set by the Bank of Canada. This leaves some prospective buyers feeling like homeownership is out of reach.

However, there are alternatives for those with poor credit or other barriers to qualifying for traditional bank mortgages.

BHM Financial Group specializes in financing Canadians despite credit challenges or past financial difficulties. For over 15 years, they have offered custom lending solutions based on asset valuations rather than credit scores.

BHM issues loans secured against their clients’ vehicles, property, and other valuable collateral. When traditional lenders fall short, companies like BHM Financial help people achieve their dreams of owning real estate.

For struggling buyers focused on improving affordability, BHM has experience assisting with options like first and second mortgages. Their experts understand the daily financial grind many families face.

While market conditions in 2024 remain uncertain, alternative lenders can help open doors to homeownership for those with unique financial situations. Connecting with companies like BHM Financial may provide customized pathways to purchasing property that buyers didn’t realize were available.