JULY 23, 2024: Looking for A Place Exempt from Foreign Buyer's Ban?
If you're looking for a place exempt from the Canadian Foreign Buyer's Ban, scroll down to the "Almost Made the Cut" section to discover 10 popular spots in Nova Scotia where the ban doesn't apply. This stunning province offers breathtaking coastal landscapes, rich history, and vibrant communities—a true gem of Canada’s Atlantic provinces.
In other news this week, we're analyzing where BoC interest rates might land by the end of 2024, exploring pricing trends for new homes in the Greater Toronto and Hamilton areas, and taking a quick look at real estate activity south of the border.
With that, here's the latest edition of THE ROUGH DRAFT!
BoC Rate at 4% by End of 2024?
Scotia Bank's head of capital markets, Derek Holt, forecasts that the Bank of Canada's (BoC) overnight interest rate will decline to 4% by the end of 2024. Currently, the rate stands at 4.75%, but it may come down at BoC's announcement tomorrow. This projection is rooted in several key economic factors:
- The Canadian economy has shown signs of underperformance. Economic growth has been slower than anticipated, which typically prompts central banks to lower interest rates to stimulate economic activity.
- Canada has experienced an increase in the unemployment rate, indicating that the labor market is under stress. Higher unemployment rates can lead to decreased consumer spending and overall economic slowdown, prompting the need for lower interest rates to boost economic confidence and activity.
- While inflation has been reasonably controlled, some core measures still exceed the BoC's comfort levels. However, the overall trend suggests that inflation is manageable, providing the central bank with some leeway to reduce interest rates without sparking significant inflationary pressures
- The housing market has not shown a sudden uptick following June’s rate cut, suggesting that the market remains cautious. This lack of immediate response in housing activity may give the BoC confidence that further rate cuts will not lead to an overheated market, allowing for more gradual adjustments
OUR TAKE
Given that two-thirds of Canadians are "desperately" looking for interest rate relief (according to a recent survey by MNP), we believe Scotia's forecast may not be too far-fetched. Historical trends show that it’s not just the rise in interest rates but the pace at which they rise that impacts the economy. With over 10 rate increases in just 12-15 months, we are now witnessing the real effects on everyday Canadians. Therefore, a drop of 100 basis points from the peak by the end of 2024 would be a welcome sign.
Average GTHA New Home Prices Return to Pandemic Levels
According to the latest report by Bullpen Consulting Group, "the average asking price for single-detached and semi-detached unsold inventory (single-family) in the Greater Toronto and Hamilton Area (GTHA) in June 2024 was approximately $1.70 million, down 31% from the market peak level of $2.47 million from July 2022. Pricing has returned to the Q4-2021 level.
Condominium apartment prices have fallen 28% from the market high of $1.58 million two years ago to $1.20 million in June 2024. Condo pricing has returned to the Q3-2021 level.
New townhouses have dropped in price by 23% from a 2022-high of $1.40 million to $1.08 million in June 2024. Pricing for towns has returned to the Q2-2021 level."
OUR TAKE
We are finally moving past the Covid-driven anomaly and returning to a housing market grounded in core economic fundamentals and rational demand. Covid was a once-in-a-generation event that caught everyone by surprise and created an artificial surge in demand. With an influx of new listings in the resale inventory, we may see further downward pressure on new home prices.
Ultimately, as interest rates are expected to decrease over the next 12-18 months, the new home market will begin to stabilize. Lower rates will make mortgages more affordable, potentially reigniting buyer interest and supporting price stabilization. This transition marks a shift back to a more balanced and predictable market, driven by sustainable demand and economic conditions.
U.S. Home Prices Hit Record in June Despite a Slow Spring Market
South of the border, low inventory of homes for sale in much of the US is pushing prices higher, according to The Wall Street Journal. "While the Spring sales activity has been slow, the average home price keeps rising. The national median existing-home price in June rose to $426,900, a record in data going back to 1999 and a 4.1% increase from a year earlier, the National Association of Realtors said Tuesday. Prices aren’t adjusted for inflation."
OUR TAKE
So what's causing this low inventory in the US? Well, one of the key factors is the loan terms in the US where mortgages often come with long-term fixed rates, typically 15-30 years. Homeowners benefit from stable, predictable payments over the life of the loan. And these long-term fixed rates provide financial security, discouraging homeowners from moving frequently. Homeowners are less likely to sell and buy a new home if it means taking on a new mortgage at a potentially higher interest rate. This notion is significantly different in Canada where our loan terms are typically 3-5 years which could lead to uncertainty in the market especially when there's a sudden shift in the broader interest rate environment.
ALMOST MADE THE CUT
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