People who want to buy a house live under certain pressure: for fear that prices will rise too quickly, many of them start looking for their ideal property now. Which drives up… prices!
The real estate market is driven by the economy, but also, to a large extent, by psychology: the rise in interest rates had convinced many future owners to put their project on hold. This week, the Bank of Canada maintained its key rate at 5%. Many observers predict a decline as early as June.
It was enough to create a surge of enthusiasm in the real estate market, but particularly among those and those who have less room to maneuver and who want to be first in line, before a reduction in the interest rate sends the crowds running.
Royal LePage is releasing its Home Price and Market Forecast Study this Friday, which confirms an increase in property values, as well as the return of multiple offers and bidding wars.
Two niches are particularly affected, explains Marc Lefrançois, approved real estate broker with Royal LePage Tendance in Montreal.
First, the first buyers. Many say that with the lack of housing and high rents, they are ripe to become owners. Some of these future owners have more or less continued their research in recent months. “It continued to do relatively well in this market,” explains Marc Lefrançois.
Except that the recent change of tone in real estate suddenly increases the pool of first-time home seekers. Everyone wants to take advantage of the best possible prices, which leads to overheating and multiple offers to purchase a property.
“It resonates a lot to hear about a possible drop in rates,” confirms Damien Charbonneau, co-founder and head of operations of the mortgage broker nesto.
In lending, things are also moving: nesto clients who are looking for a property are much more active, says Damien Charbonneau. They’re ready to make an offer as soon as they come across the right property – they’ve gone past the stage of assessing their mortgage capabilities. Many have also significantly increased their budgets in recent months.
The more trust people have, the more they will start shopping and making deals. We are falling back into a market of bidding wars and price increases.
Damien Charbonneau, co-founder and head of operations of mortgage broker nesto
Damien Charbonneau has advice for buyers, and particularly for first-time buyers: start the mortgage process in advance and get a pre-qualification which will give you the facts, before hitting the streets on the weekend to tour open houses . According to him, it takes away a lot of stress to know your budgetary capacities in a very realistic way.
Those who already own
Another category of buyers is currently hunting for deals: those who are already homeowners and who were waiting for the end of the rate hike to purchase a property of higher value.
This more luxurious market had completely stopped in 2023, specifies broker Marc Lefrançois.
“With the uncertain economic situation, it was out of the question for these people to embark on major projects,” explains the man who assesses that since the start of the year, the activity for properties of more than a million dollars jumped 70%, compared to the start of 2023. “That gives us an idea of the rapid change in tone,” he says.
The smartest in this group want to get their hands on homes that have been for sale for a while and whose prices have fallen in recent months. “They want to clean up all the market bargains”, illustrates Marc Lefrançois.
Which will have a domino effect: if they leave an average-priced house to buy more expensively, that will bring some stock into an affordable category for a greater number of people, explains the broker, who recalls that Canada is in a severe housing shortage situation, which inevitably increases stress on the market. And about people.
A fragile dream
The broker is certainly not the only one to make connections between the housing shortage and the forces this exerts on the real estate market.
Thursday, the Parliamentary Budget Officer published a report which compares the vacancy rate in Canada to the number of couples forming.
Hard observation: we are in deficit. There are more couples forming than homes being built.
The mandate of the Office of the Parliamentary Budget Officer is to provide economic analysis to parliamentarians in Ottawa. This time he makes an inroad into the married life of taxpayers by calculating the evolution of the number of households in the country.
“It is useful to assess household formation in relation to net completed dwellings to gauge the imbalance in housing “flows”. However, the total vacancy rate, i.e. the number of vacant housing units for sale or rent relative to the total units in the stock, provides a more complete stock view of the imbalance in the housing market,” reads his report.
Canada had a vacancy rate of just over 5% in 2023, a record low that “puts even more upward pressure on house prices and rents.”
“Our demand-driven population estimates indicate that household formation has surpassed pre-pandemic levels to 460,000 (net) new households in 2023, far higher than the record number of net completed homes in 242,000 units for the same year,” underlines the Office of the Parliamentary Budget Officer.
This situation and the new increases in the value of houses announced are not without consequences on the morale of people who want to buy a property. Some even believe that this will no longer be possible – according to recent analyzes carried out by financial institutions.
The majority of Canadians who are not homeowners now believe that this is an inaccessible project for them, estimates CIBC, which published a study on Thursday putting this proportion at 76%. The dream of having a house of one’s own (or a condo), however, is strongly anchored for those who are not owners. Despite headwinds, more than half (56%) maintain their goal of one day being an owner, this study calculates.
The Royal Bank was also interested in the obstacle course which is now that of future owners. Its study on the housing market unveiled earlier this week painted a less than optimistic picture of the situation for some buyers. Some will be forced to extend their life as a tenant. Provided you find accommodation.
Read the column “A million lovers in the middle of a housing crisis”
A vigorous market
The increase in property prices in Greater Montreal was 5.1% in the first quarter of 2024 compared to the previous year, details the study published this Friday by Royal LePage. The real estate broker predicts strong months for the entire province. Few will dispute the market recovery and rising property values. Earlier this week, the Professional Association of Real Estate Brokers of Quebec announced a 14% increase in home sales in March alone, in the Montreal region, compared to the same month last year.