Canadians who mothballed their home buying plans when the Bank of Canada started its series of interest rate hikes last year are set to spring forward with their home purchasing plan, says a new report from Royal LePage.
A survey conducted by Maru/Blue for Royal LePage found 24% of respondents were in the market for a new home this past year, with 63% of that group saying they postponed their plans due to rising rates.
With the bank holding its rate earlier this month, and with indications it could continue to hold the rate going forward, 62% of respondents who postponed their intentions to purchase said they intend to resume their home buying plans.
“Eight times a year, the Bank of Canada announces changes to its key interest rate and for eight consecutive meetings, they aggressively raised rates in an effort to tame runaway inflation. On March 8, 2023 they did nothing and doing nothing was a very big deal,” says Phil Soper, president and CEO, Royal LePage.
“Based on our just-completed national survey, this was the signal that many Canadians were waiting for; an indication that it was safe to wade back into the housing market to search for the family home they so desperately want or need.”
More than a quarter of survey respondents (26%) who postponed buying said they will venture back into the marker as early as this spring
Additionally, 36% say they plan to move forward with their buying intentions, but will wait for the central bank to maintain the current rate for several consecutive months.
One-quarter of those who postponed their home buying plans said they do not intend to resume their plans in the near future.
The bank’s rate hikes dramatically increased the cost of borrowing, says Royal LePage, which postponed buying plan, plus, say 65% of respondents, have greatly reduced the value of home they can afford, while 28% say rates have somewhat reduced this value. Of those who chose to postpone their home purchase plans, 67% are between the ages of 18 and 34.
The type of mortgage buyers would choose varies, with most gravitating towards a fixed rate mortgage, which can shelter homeowners from fluctuating interest rates. More than half (53%) say they would choose a four- or five-year fixed rate mortgage, with 17% saying they would choose a short-term fixed-rate mortgage of between one and three years. Some 16% of respondents say they would opt for a variable rate mortgage.
“The Bank of Canada indicated it believes the rate hikes completed over the past 12 months are working their way through the economy, and that inflation should fall to three per cent by mid-year,” says Soper. “While stating it believes this period of rising rates is behind us, the bank qualified the statement, stating if needed, it will increase rates again in the future. That said, it's unlikely we will see another period of back-to-back rate hikes in the near future.”
“In recent weeks, well-priced properties in some popular neighbourhoods with low inventory have already seen multiple offers. We anticipate that signs of stable economic conditions will lead to a more normalized spring market.”
Soper also addressed the fragile nature of banking institutions in the US.
“Despite more pronounced economic challenges south of the border, Canada’s economy has remained stable throughout this period of correction,” he says.
“In the wake of the collapse of two US banks, industry regulators are taking a cautiously optimistic approach, noting while no bank is immune, Canadian financial institutions, even smaller ones, are more resilient to increased interest rates due to the strict federal regulations imposed upon them, as evidenced during the 2008 financial crisis when the Canadian housing market and its banking sector performed better than in the US.”
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