Morning Market Brief: December 21, 2023

Challenging environment for North American real estate?

Data released yesterday showed the US real estate market is under pressure. After a period of strong demand, which helped push prices up, the market has pulled back in 2023 amid high mortgage costs and already elevated prices. Canada’s real estate market has experienced largely the same trajectory.?

1. Mortgage applications in the US fell over the week ended December 15, marking their first decline in seven weeks. The week’s 1.5% drop was driven by a fall in applications for both home purchases and refinancings.
2. Mortgage applications have risen higher in recent weeks amid a drop in mortgage rates. According to the Mortgage Bankers Association of America, the rate on a 30-year fixed-rate mortgage dropped to 6.83% over the week from 7.07% in the previous week.
3. The mortgage rate hit a 2023 peak of 7.90% during the week of October 22. Mortgage rates in the US have fallen substantially over the past month on heightened expectations that the US Federal Reserve Board will begin cutting rates in 2024.
4. While demand has shown signs of improving amid falling mortgage rates, home sales activity has been relatively muted. The real estate market has been hampered by low listings as people are staying put in their existing homes. Existing home sales edged higher in November, but the volume was close to levels not seen since 2010.
5. We have seen much the same in Canada’s real estate market. The air has been let out of the post-COVID boom, which sent prices soaring higher. The Bank of Canada’s aggressive rate hikes lifted borrowing costs, subduing demand.

A lack of listings in both Canada and the US is weighing on their respective real estate markets. While demand appears to be picking up, real estate market activity remains subdued. Affordability is a big concern, which has put significant pressure on governments to increase the housing supply. Despite any periods of weakness, real estate has proven to be an attractive investment over the long term, along with providing some protection against inflation.

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