Renewed activity by speculators and investors and a wave of mortgage renewals herald a hot real estate spring. A return of larger numbers of buyers is expected later in the year, but with a rather timid improvement in affordability in the sights.
John Fucale, senior vice-president of broker relations at Multi-Prêts mortgage, takes stock. We are expecting a very good spring after a year 2023 dominated by a 20% decline in transactions in the residential real estate market in Quebec, according to statistics compiled by the JLR firm. “2024 will be very good, especially during the second part, driven by the decline in interest rates. The pool of buyers will increase,” he says. Until then, we will observe increased interest from speculators and investors, who will want to anticipate the expected decline in interest rates.
But things won’t necessarily be easy for the buyer. Mr. Fucale reminds that the client must be qualified for a rate two percentage points higher than the contractual rate: we are currently talking about a rate of 7 to 8%. “Compared to the posted rate, the difference may represent a car payment. It is important. »
In addition, 2024 will be the first of three big years for mortgage renewals. This year alone, these renewals can amount to 250,000 transactions. But “we are lucky in Quebec, with an unemployment rate of less than 5%”. Not to mention that, despite the increase in prices, the market remains more affordable here, displaying a value that can be described as realistic in a context of soaring rent costs, underlines the specialist from the mortgage brokerage firm.
This “Quebec option” could, however, become a double-edged sword if it fuels the activity of speculators and investors more than necessary, recognizes the mortgage brokerage specialist.
Difficult return to affordability
So, at most, we expect a slight relief after a rather difficult year in 2023 on the residential scene.
In Canada, the rental vacancy rate has reached a record low, at 1.5%, the Canada Mortgage and Housing Corporation said in its January 31 report. In addition, the average rent recorded an equally record growth of 8%, outpacing the increase in wages. Housing affordability has decreased for renters, a problem amplified by the lack of available rental housing, adds the institution.
In its December data, Statistics Canada showed that, on an annual basis, the increase in borrowing costs contributed to the acceleration in the average growth of rental prices and the cost of mortgage interest. The mortgage interest cost index rose 28.5% in 2023, the largest increase on record, as mortgages were obtained or renewed at higher interest rates. “This index was the largest factor driving the increase in the overall average annual consumer price index in 2023. In addition, consumers paid 6.5% more for their rent in 2023, after experiencing an increase of 4.6% in this regard in 2022. Growth in immigration and rising interest rates may have stimulated demand for rental housing by increasing the potential cost of properties. added the federal agency.
For 2024, the Bank of Canada is not very optimistic. In its report on monetary policy published on January 24, it highlights the continued strength of the rise in housing costs. “The increase in the cost of mortgage interest and tenants’ housing costs has increased significantly, hovering around 29 and 8% respectively. These are now the components that contribute the most to the increase in prices of housing-related services. » And added that “the sharp increase in housing costs should exert upward pressure on inflation for some time”.
The central bank notes that this general increase in housing costs has slowed to a lesser extent than during other monetary policy tightening cycles. In an earlier report, she noted that, “unlike in previous cycles, the rise in mortgage interest costs is not strongly offset by weakness in other housing components.”
It finds that the cost of mortgage interest contributes more to inflation than during past tightening episodes. “This situation reflects the sequence of a period of historically low interest rates and a very rapid increase in the key rate in 2022 and 2023.”
For its part, housing supply is hampered by several long-standing structural constraints, including zoning restrictions, lengthy permitting processes and construction labor shortages. The effect of these structural constraints on supply is intensified by the increase in the number of new arrivals, greater than in the past. “As a result, the general housing vacancy rate reached its lowest level, which supported house prices and pushed up rents. »
Many of the factors contributing to the significant increase in prices of housing-related services are likely to persist, she believes. “The rise in mortgage interest costs will remain strong as more households renew their loans at a higher rate. » Additionally, continued structural supply issues and strong underlying demand from population growth will likely continue to put pressure on home prices and rents. It is expected that imbalances will only be resolved gradually.
In summary, over the next few years, the rise in prices of housing-related services should only slow modestly and thus “pose strong resistance to the return of inflation to the 2% target”.