“Markets’ reaction [to the rate cuts] so far has been largely muted,” wrote RBC assistant chief economist Robert Hogue, in the bank’s latest economics report on housing. “It will clearly take deeper rate cuts to stimulate demand in a material way, as buyers continue to contend with high ownership costs and poor affordability.”
With more rate cuts anticipated before the end of the year, MoneySense asked four experts to share their perspectives on whether it’s a good time to buy a home in Canada. Will improvements in mortgage affordability drive demand and lead to higher home prices? What other economic issues are at play? And how are high housing costs affecting different groups of Canadians, from first-time home buyers to retirees looking to downsize? Let’s see what the experts have to say, and what Canadians can expect.
(Interviews have been edited for length and clarity.)
Is this a good time to buy a home in Canada?
An economist’s perspective:
David-Alexandre Brassard, MA, BA, is the chief economist for CPA Canada, which offers financial literacy to Canadians.
You’re not going to like my answer: Now is as good of a time as any. Because interest rates are starting to get cut, [mortgage rates] might be reduced faster than we thought. That’s what most economists are settling on. On the flip side, that means the economy is doing worse than we thought. Interest rates are forward-looking. Lending institutions have economists, such as myself, who forecast and estimate future interest rates. What most have in the cards is that rates are going to keep going down until late 2025.
So, your question boils down basically to: Will mortgage affordability improve in Canada? I don’t believe it will. What we’ve seen in Toronto and Vancouver specifically is that there’s more household wealth tied to housing. In 2019, that was already around 46% to 47% of net worth. Meanwhile, across Canada, it was closer to 34%. Over time, more and more of our wealth is being put in our home. And there are two problems with this: first, what you’re putting in your home, you’re not putting into your retirement; and second, there’s not that much room for housing price appreciation.
If you look at the price-to-income ratio across Canada, right now it’s at 8x. So, essentially, if you’re a dual-income household, the house is still going to be four times higher than what both of you are bringing in. If you’re looking at Vancouver and Toronto, it’s between 11 and 12 times.
As interest rates are cut again and again, banks are going to allow households to borrow a bit more because the cost [of borrowing] is going down. And with the gap between housing demand and supply, prices will probably go up. It’s kind of crazy to think we’ve gone from a policy rate of 0.25% to 5%, and we’ve seen a drop in prices that was 10% to 15%. This means there’s an issue with housing supply.
I’ve been saying this for the last few months, but we don’t have an “inflation issue” the last eight months, we have a “housing issue” that’s creating inflation by itself.
