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Posthaste: Sidelined homebuyers just waiting for the Bank of Canada to cut rates Back to video

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The swift rise in Bank of Canada interest rates over the past two years has forced millions of potential homebuyers to the sidelines.

A recent Royal LePage survey found that 56 per cent of Canada’s adult population say they have postponed their property search because of higher interest rates.

Among them, 51 per cent say they will jump back into the market if interest rates reverse — but by how much?

For 10 per cent all it would take is a 25 basis point cut, the survey found. Eighteen per cent say they are waiting for a cut of between 50 and 100 bps and 23 per cent need to see a reduction of more than 100 bps before they will return to the market.

A fifth, 20 per cent, of sidelined buyers say they no longer plan to buy a home.

The big question for many then is when interest rates will start to go down. The Bank of Canada announces its rate decision next Wednesday on March 6, but most economists think the first cut won’t come until June.

Olivia Cross of Capital Economics expects the Bank will use its press conference next week to emphasize the message that its restrictive policy needs more time to work.

Up until last week there was a clear case for holding, with readings on economic growth and employment both coming in stronger than expected. But consumer price index data for January muddied the waters, showing the inflation rate falling back within the central bank’s target range.

If shelter inflation, which is exacerbated by higher interest rates, is excluded, than inflation is lower than its average in 2019, said Cross.

The Bank of Canada, however, still has reason to be patient, she said. Though January’s inflation numbers were an improvement they followed two months of acceleration and policy makers will likely want to see several months of deceleration before pulling the trigger.

“The Bank may also be concerned about the recent signs of strength in the housing market. Although house prices continued to fall in January, the sales-to-new listings ratio now points to house prices rebounding relatively strongly as we head into the busy spring season,” said Cross. “The Bank will therefore be concerned about pouring fuel on the fire if it cuts in April.”

There is also the risk that the Bank of Canada will decide to wait beyond June if the economy rebounds, and market bets reflect this uncertainty, said Cross. While the market sees a 30 per cent chance of a cut in April, it has not fully priced in a 25 bps cut for June.

In the meantime, homeowners with a mortgage will continue to struggle.

The central bank’s own research estimates that nearly 80 per cent of borrowers renewing a mortgage may face “significantly higher payments” by the end of this year.

A Ratehub.ca survey that polled over 2,000 homeowners suggests most are struggling with higher rates. Almost 70 per cent said it has become more challenging to pay their mortgages since rate hikes began in March 2022, and of those 67 per cent were worried about making their payments once their mortgage renewal came up.

Ways of coping with higher payments ranged from tightening their budgets to switching to a non-prime lender to downsizing their homes, the survey said.

Almost 30 per cent said they plan to refinance their mortgage and despite the prospect of Bank of Canada cuts, the fixed-rate mortgage remains the preferred choice.

“This reflects borrowers’ desire for stability in a volatile marketplace, even as expectations grow for lower variable rates in the near future,” said Penelope Graham of Ratehub.ca.

The same goes for homebuyers. When they re-enter the market, 44 per cent of the respondents in the Royal LePage survey said they intend to obtain a four-year or five-year fixed-rate mortgage, “the most popular mortgage type and term in Canada.”

Only 22 per cent said they would go for a variable-rate and 12 per cent say they would get a short-term fixed-rate mortgage.

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World prices for downtown apartments

If you thought your rent was high, spare a thought for renters in Hong Kong where downtown apartments go for US$3,083 a square foot. Canada doesn’t look so bad, with Vancouver renters paying $866.70 a square foot, the highest in the country.

Still it’s not great, as today’s chart shows. Housing affordability in Canada continued to deteriorate in the fourth quarter, bringing it almost back to the worst affordability since the 1980s, according to National Bank of Canada’s index. But for renters’ affordability has never been worse, said National.

Homeowners will get a break when the Bank of Canada starts to cut interest rates this year, but with the national vacancy rate at a record low of 1.5 per cent, the outlook for renters remains challenging.

Nor is supply expected to pick up soon as building permits plummeted in many Canadian cities at the end of 2023, said National.

• Alberta and Nova Scotia budget
• Statistics Canada releases its figures for gross domestic product for December and the fourth quarter of 2023. A preliminary estimate suggested GDP rose 1.2 per cent on an annualized basis in the fourth quarter, after a decline of about the same in the third.
• Today’s Data: United States personal income and spending, pending home sales
• Earnings: CIBC, Toronto-Dominion Bank, Laurentian Bank of Canada, Alimentation Couche-Tard Inc, Crescent Point Energy Corp, MEG Energy Corp.

• Peter Aceto was going to be the cannabis industry’s fall guy. Now he’s making a career comeback
  
• Alberta restricts renewables built on farmland, creates buffers for ‘pristine viewscapes’

Whether you bought your home at the peak of the market or have owned it for many years, mortgage renewals during this time of high interest rates are causing Canadians a lot of sleepless nights. Credit counsellor Sandra Fry has some practical tips on budgeting for the increase in payments. Find out more

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you wondering how to make ends meet? Drop us a line at aholloway@postmedia.com with your contact info and the general gist of your problem and we’ll try to find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course). If you have a simpler question, the crack team at FP Answers led by Julie Cazzin or one of our columnists can give it a shot.

McLister on Mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. homeowners with a mortgage

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com.

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