Sidelined home buyers ready to return to the market
After a year of postponed plans and stalled home buying, Canadian homebuyers are getting ready to jump back into the housing market following the Bank of Canada’s announcement to hold the overnight lending rate at 4.5 per cent, according to a recent survey conducted by Maru/Blue and commissioned by Royal LePage.
The survey revealed that 63 per cent of Canadians who delayed their home purchase plans over the past year did so due to rising interest rates, but now, with the hold on interest rates, 62 per cent of those who postponed their plans are ready to return to the market.
The survey found that 26 per cent of Canadians who put their home purchase plans on hold over the last year due to rising interest rates will resume their search this spring.
Meanwhile, 36 per cent say they plan to move forward with their buying intentions but will wait for the central bank to maintain the current rate for several consecutive months.
However, a quarter of those who postponed their home buying goals stated that they do not intend to resume their plans in the near future.
“Eight times a year, the Bank of Canada announces changes to its key interest rate, and for eight consecutive meetings, they aggressively raised rates in an effort to tame runaway inflation. On March 8th, 2023, they did nothing and doing nothing was a very big deal,” said Phil Soper, president and CEO of Royal LePage, in a press release.
“Based on our just-completed national survey, this was the signal that many Canadians were waiting for – an indication that it was safe to wade back into the housing market to search for the family home they so desperately want or need.”
Of those who postponed their purchasing plans due to the increased cost of borrowing, 65 per cent report that higher interest rates have greatly reduced the value of the home they can afford.
The survey also found that two-thirds (67 per cent) of those who postponed their home purchase plans were between 18 and 34.
The impact of the increased cost of borrowing
For those Canadians who intend to return to the housing market, many are gravitating toward a fixed-rate mortgage, which can shelter homeowners from fluctuating interest rates.
More than half (53 per cent) say they would choose a four or five-year fixed-rate mortgage, and 17 per cent say they would choose a short-term fixed-rate mortgage (one to three years). Some 16 per cent of respondents say they would opt for a variable-rate mortgage.
“The Bank of Canada has indicated that it believes the rate hikes completed over the past twelve months are working their way through the economy and that inflation should fall to three per cent by mid-year,” continued Soper. “While stating that they believe this period of rising rates is behind us, the bank qualified the statement, stating that if needed, it will increase rates again…That said, it is unlikely we will see another period of back-to-back rate hikes in the near future.
Despite the economic challenges south of the border, Canada’s economy has remained stable throughout this correction period, Royal LePage notes.
Industry regulators are cautiously optimistic, noting that while no bank is immune, Canadian financial institutions are more resilient to increased interest rates due to the strict federal regulations imposed upon them.
“In recent weeks, well-priced properties in some popular neighbourhoods with low inventory have already seen multiple offers,” Soper said.
“We anticipate that signs of stable economic conditions will lead to a more normalized spring market.”
Source: Royal LePage
