2023 was a challenging year for real estate, with a variety of factors that made buying, selling, and renting in the GTA an uncomfortable proposition for many. Now that the year is behind us, I'm seeing an uptick in optimism as we move into 2024, and it’s based on this: with the promise of lower rates and the possibility of lower prices on the horizon, folks are hoping for a healthy, busy spring market.
But do we have reason to be optimistic? Maybe. There are a lot of factors shaping the market in the year ahead:
1. Interest Rates
Borrowing rates will have the single greatest influence on market performance moving forward. Economists are forecasting that the Bank of Canada could drop the rate as early as April. But how much of a drop will it be? And what will it take to bring back confidence? 25 basis points? 50? 100?
We won't be going back to ultra-low rates anytime soon, but everything I'm reading is pointing to four rate cuts by the end of 2024. Which is certainly promising – but is not a guarantee.
Rates have actually already started dropping a bit, even without any changes from Mr. Macklem: fixed rates have dropped nearly 100 basis points. They're currently hovering in the low 5%, and what's happening in the bond market right now suggests we might even see something in the high 4% range for the spring.
If that happens without the Bank of Canada doing anything, that could mean a big boost in activity. Add in a drop (or four!) in the overnight rate, and folks will start getting off the fence in earnest.
2. 1M Canadian Mortgages Are Up For Renewal This Year
Holders of five-year fixed products have been sitting pretty with mortgages locked in at 2019 rates, while homeowners with variable rates have watched in horror as their monthly payments kept going higher and higher. But with those cushy terms coming to an end, renewing at today's much higher rates will come as a shock to many households, especially those who stretched their budgets to buy.
A lot of people are going to get hit hard. But does that mean there will suddenly be a whole bunch of new listings on the market? Maybe not. People keep predicting a flood of forced sales, but that hasn't really happened yet. According to the Mortgage Brokers’ Association, defaults are pretty low in general, so this big flood people are waiting for may remain a trickle.
3. Immigration Is Having A Major Impact.
In 2023, our population grew by a record 1.2 million people. The federal immigration target for the year was 500,000, so that means more than half of that 1.2 million are non-permanent residents: international students, temporary workers and asylum claimants. They aren’t included in the target – and aren’t subject to any real restrictions or caps. But here’s the thing: whether or not they plan to stay in Canada permanently, they all need a place to live. This influx is putting huge pressure on the market, especially for rentals, which is the type of housing most immigrants choose – especially ones who aren’t planning to stay, and can’t buy anyway because of the foreign buyer ban.
This influx of people is exacerbating our housing crisis – builders simply can’t keep up with the demand. And it’s impacting affordability. Steve Staretsky of the Staretsky Report talks about this situation in more detail – his perspective is worth a read.
4. Even Motivated Sellers Aren't Always That Motivated
Yes, there are certainly ultra-motivated sellers out there – typically investors who need to cash out. But there aren't as many as you might think. We aren't seeing “fire sales,” even for folks who are selling because they can no longer afford their mortgage payments. While some may be putting their homes on the market for that reason, they aren't doing so in a panic. From what we've seen at Right at Home Realty and Property.ca, sellers are being patient and waiting for the right numbers to come along.
The same thing goes for another group of homeowners who are divesting themselves of properties: baby boomers. Many have decided it's time to downsize, but generally, they're willing to wait for the right price.
5. Life Keeps Getting More Expensive
Inflation may be getting more under control right now, but prices are high. Everything from food to clothing comes with exorbitant price tags, without the increases in income to match. And now, Toronto homeowners are facing a 10.5% property tax hike – and a possible municipal sales tax, which will erode affordability even further.
And as life gets pricier, the labour market is getting tighter. Layoffs seem to be in the news every day. People nervous about losing their jobs (or those who already have) won't be jumping into the market no matter what happens with the rates. That kind of uncertainty could temper the effect of lower rates.
6. New Rules Around Bidding Wars Could Change Things, Too
Last month, I wrote about the new Trust in Real Estate Service Act (TRESA) guidelines and the potential impact they may have on real estate processes and prices.
Sellers now have the option to reveal offers in a multiple offer situation, which could go two ways. It could make the process fairer and more transparent, avoiding the big price jumps that have often been the result of blind bidding. Or it could drive the prices even higher as the system turns buying a home into something more akin to an auction – one where you know exactly what price you need to beat.
As for me? I’m choosing to be cautiously optimistic about where 2024 is headed.
Despite a “chilly” housing market heading into the new year, we are still facing a housing shortage. People want to buy. If interest rates start coming down, demand will go up. Assuming rates drop enough, we could get a strong spring that exceeds 2023 sales figures.
This article was produced in partnership with STOREYS Custom Studio.