High interest rates are giving a small blow to the real estate market in the greater Montreal area, which recorded a slight decline in prices as well as a decline in sales in the last quarter, according to new data from Royal LePage. But a sign that the market is resisting, prices remain increasing compared to their level a year ago. And the drop in interest rates expected this year could boost the market, foresees the brokerage firm.
In the greater Montreal area, the median sales price for a single-family home reached $629,700 in the fourth quarter of 2023: a decrease of 2.5% compared to the previous quarter, but an increase of 4.7 % on an annual basis.
Concerning co-ownerships, their median price remained stable between the third and fourth quarters, standing at $450,200. It still shows a slight increase of 1.1% compared to the same period in 2022.
“When we compare the value of a property in Greater Montreal compared to the fourth quarter of 2019, it increased by more than 30%,” underlines Dominic St-Pierre, vice-president and general manager of Royal LePage for Quebec.
Taken on an annual basis, this equates to an increase “of approximately 7 to 8% per year over four years, which is much higher than the historical norm,” specifies the expert. “If we look at the history of the last fifty years in Montreal, annual price increases were around 3% to 4%, which was slightly higher than inflation,” he adds.
In other words, property prices have grown twice as fast as normal over the past four years. “But the majority of this increase took place in the heart of the pandemic,” specifies Mr. St-Pierre.
While inflation is weighing on the purchasing power of households and high interest rates are limiting their borrowing capacity, why is the slowdown in property prices not more pronounced? That’s because potential buyers continue to face a historically low supply of properties.
When comparing the value of a property in Greater Montreal compared to the fourth quarter of 2019, it increased by more than 30%
“We are at 47%, that is to say approximately half of the average supply observed in Montreal over the last ten years,” notes Mr. St-Pierre. In addition to limited supply, demand remains supported by population growth linked to immigration, he adds.
This year, Royal LePage also expects the real estate market to be rather dynamic, given “a first reduction in the key rate from the Bank of Canada expected later this year,” the firm underlines in its press release.
“As soon as the Bank of Canada indicates that it will soon reduce interest rates, the market will recover significantly,” predicts Mr. St-Pierre.
There should therefore be little relief in terms of housing affordability. “When you take into account both prices that continue to rise and high interest rates, it is not surprising to see that there are many people who are currently out of the market and who simply cannot afford to purchase a new property,” admits the Royal LePage executive.