Canada's national aggregate home price creeps up to $824,300—but sales are still stalled even after rate cuts

Bank of Canada June rate cut didn't motivate buyers

In June, the Bank of Canada (BoC) cut overnight lending rates from 5% to 4.75% in an effort to encourage buyers to re-enter the housing market.

"A change in monetary policy drives consumer behaviour in two important ways: Lower rates mean lower monthly payments, opening the door to some families previously shut out of the market. Second is the psychological signal broadcast to sidelined buyers that the tide is turning, and that market activity is about to pick up again," said Soper.

However, the initial rate drop — of 0.25% in June — wasn't enough to encourage home buyers to jump back into the market. When asked about their confidence in the real estate market and the impact of the June rate, one in four Canadians (25%) said a rate cut of at least 100 basis points (1%) is needed before resuming their search to buy a home. A smaller segment of this potential home buyer segment (18%) said a rate cut between 0.5% and 1% would entice them back to market, while 10% of potential home buyers considered the quarter percent rate drop enough of an incentive to get back into the market.

This rate is a benchmark for the cost of borrowing and important for a number of factors, including variable rate-mortgages. When it comes to real estate, a drop in the Bank of Canada’s interest rate, sometimes called the overnight lending rate, can lead to a decrease in monthly mortgage payments.

Will the July BoC rate drop provide more incentive?

Given that more buyers were looking for interest rates cuts between 0.5% and 1%, the central bank's recent decision to further drop rates could mean more buyers will re-start their home shopping plans. This doesn't mean sellers can anticipate a flurry of activity in July and August — historically, two months with low sales activity in most urban centres across Canada. However, this additional rate drop and the potential for a third rate drop in September could result in an active fall real estate market.

Read More: 7 ways the BoC rate drops will impact Canadians and homeowners

Empower your investments with Qtrade

Discover Qtrade's award-winning platform and take control of your financial future. With user-friendly tools, expert insights, and low fees, investing has never been easier.

Start Trading Today

Interest rates aren't the only factor when it comes to housing affordability

Inflation is another serious factor for home buyers, first time or otherwise.

"It is worth noting that once you remove the impact of high mortgage rates from Canada's Consumer Price Index calculation, inflation today sits well below the 2% target,” said Soper. "Canada's housing market faces pent-up demand after two stifling years of high borrowing costs. While inflation control is crucial, persistently high rates are increasing the risk of a surge in demand when buyers inevitably return.”

The Bank of Canada aims for an inflation rate between 1% and 3%, with 2% the mid-point target rate. Inflation sits around 2.9% as of May of 2024. When adjusted for shelter costs, the inflation rate drops to 1.5%, according to Statistics Canada’s May Consumer Price Index.

Survey methodology

The Royal LePage House Price Survey provides information on the most common types of housing, nationally and in 64 of the nation's largest real estate markets. Housing values in the Royal LePage House Price Survey are based on the Royal LePage Canadian Real Estate Market Composite, produced quarterly through the use of company data in addition to data and analytics from partner company, RPS Real Property Solutions, the trusted source for residential real estate intelligence and analytics in Canada. The Royal LePage House Price Survey calculate the national aggregate price using a weighted average of the median home price in Canada based on the country’s 64 largest real estate markets.

Sources

1. Royal LePage: The spring market that never was: Canadian real estate remains in prolonged catch-up period as buyers idle on the sidelines (July 11, 2024)

— with files from Romana King