When will Canada's housing market pick up pace?

A mild technical recession could give way to a busier market in the second half of the year, says president

When will Canada's housing market pick up pace?

Canada is facing an uncertain economic climate in 2023 – but with any national recession likely to be a mild one, the country’s housing and mortgage markets could be set for a rebound in the second half of the year, according to a prominent mortgage executive.

Avish Buck (pictured), president of MCAN Home and senior vice president and chief operating officer at MCAN Financial Group, told Canadian Mortgage Professional that a robust labour market seemed to suggest little prospect of a significant economic downturn this year, with plenty of potential buyers also still waiting in the wings to purchase a property when the opportunity arises.

“I think based on what we’re seeing right now, the recession will be more of a technical one,” he said. “It shouldn’t be as severe, because if anything, our job numbers show that our economy is resilient. Overall, I think the market should bounce back toward the end of this year.  

“When rates begin to drop – whenever that happens and there is a lot of speculation on that – you might see all the buyers who are waiting now, rush in. Life moves on, families move and grow [and] the demand for homes remains. It can’t be paused for too long.”

What role will the Bank of Canada play?

Indications of a stronger-than-expected economy were bolstered by a bombshell January employment report that saw the economy add 150,000 jobs that month, blowing away analyst predictions and defying expectations of a slowdown amidst Bank of Canada interest rate hikes.

The central bank has hiked its benchmark rate eight times over the past year in an effort to dial down rampant inflation, which surged to a 39-year high in June before falling slowly in recent months.

After staying at a rock-bottom 0.25% for nearly two years since the onset of the COVID-19 pandemic, the Bank’s trendsetting interest rate has jumped by a full 425 basis points in the space of the last 12 months, with a quarter-point hike arriving in January to start the year.

Still, it’s indicated its openness to a pause on rate increases if economic trends play out as expected – and while jobs numbers were higher than expected, the national GDP remained largely flat in the final months of 2022, strengthening the case for no rate hike at the Bank’s next announcement on March 8.

Buck said the prospect that rates will begin to drop at some point in the not-too-distant future would see buyers reenter the housing market, although he envisaged 2024 as the earliest point for rates to tick downwards again.

“I do expect that as soon as rates are trending the other way, you might see people rush to the market, see that demand pick up again,” he said. “I don’t necessarily think rates will go down this year – potentially the last quarter of this year, but hopefully early next year.”

Economic turbulence means challenging times for homebuyers

Hotter-than-anticipated economic data has seen five-year Government of Canada bond yields surge in recent weeks, pushing fixed rates upwards and creating steeper affordability challenges for many buyers in the housing and mortgage markets.

Still, while variable rates were comfortably the most popular options for borrowers at this time last year, those Bank of Canada rate increases mean most buyers are now opting for fixed-rate mortgages – although for shorter terms than five years.

“Compared to last year year in this period, when everybody was going for the variable rate, we’ve seen the demand switch to fixed. But interestingly, borrowers are not going for the fixed-year fixed,” Buck said. “They’re going for the shorter-term fixed loans, so the three-years are popular right now.

“On the B side, interestingly, we’re seeing borrowers opt for longer-terms – the two- and three-year terms, which is a big shift. That all aligns with the fact that I think borrowers are having a harder time qualifying, but we’ve also seen the impact of that on the renewal side of or business.”

The turbulence of the current market is having a knock-on effect on both lenders’ and brokers’ business, Buck added, although he said that most are envisaging an upturn as the year progresses.

“I think all lenders are probably experiencing slower origination,” he said. “When I talk to brokers, they all say that it’s a slower time and they think things will get better in the second half of the year. I think you might see it pick up a little bit, but right now it’s a challenging time for brokers, navigating the market.”