According to the Royal LePage House Price Survey released yesterday, the aggregate price of a home in Canada rose 1.9 per cent year-over-year to $824,300 in this year’s second quarter. Despite a slowdown in activity in Canada’s priciest markets, quarter-over-quarter, the national aggregate home price increased by 1.5 per cent.

“Canada’s housing market is struggling to find a consistent rhythm, as the last three months clearly demonstrated,” says Phil Soper, president and CEO, Royal LePage. “Nationally, home prices rose while the number of properties bought and sold sagged (which is) an unusual dynamic. The silver lining: inventory levels in many regions have climbed materially. This is the closest we’ve been to a balanced market in several years.”

Soper notes that this trend is evident in the greater regions of Toronto and Vancouver, where sales are down yet prices remain stable. However, low supply and tight competition persist in the prairie provinces and Quebec.

A ‘tepid’ market response to June’s interest rate cut

Despite the Bank of Canada’s June 5 interest rate cut by 25 basis points, from 5.0 per cent to 4.75 per cent, buyers did not immediately return to the market as predicted. “This spring, with bank rate cuts highly anticipated, we saw some buyers race to get a deal done ahead of an expected spike in demand. Yet, when that first cut finally occurred in early June, market response was tepid,” says Soper.

“Not surprisingly, the quarter-point cut to the bank rate didn’t substantially improve the affordability picture. As for consumer sentiment, our early-year research indicated that only one in 10 potential homebuyers would be motivated by a tiny rate drop. The tale the market tells as rate cuts get to the point of a material reduction in the cost of borrowing should be a very different one.”

A Royal LePage survey conducted earlier this year found that 51 per cent of sidelined homebuyers would re-start their search if interest rates were reduced. However, only 10 per cent said a 25-basis-point drop would be enough for them to return to the market. 18 per cent are waiting for a cut of 50 to 100 basis points and 23 per cent need more than 100 basis points less before they’d consider resuming their search.

Prices

The Royal LePage National House Price Composite, which includes both resale and new build properties, showed that the median price of a single-family detached home increased 2.2 per cent year-over-year to $860,600. The median price of a condominium rose 1.6 per cent to $596,500. Quarter-over-quarter, the median price of a single-family detached home increased 1.8 per cent, while the median price of a condominium rose 0.8 per cent.

The national aggregate home price is well above pre-pandemic levels, recording a 30.8 per cent increase over the same period in 2019.

“2024 marks the fifth year since the pandemic and post-pandemic rebound began to wreak havoc on real estate prices. Yes, values remain well above 2019 levels, yet a 30 per cent rise in home values spread over five years, or six per cent annually, is approaching long-term norms for Canadian residential property appreciation. The market has a way of correcting mistakes.”

Inflation and interest rates

For the past two years, Canada’s housing market has seen home prices fluctuate due to higher interest rates. As the Bank of Canada carefully balances lowering the key lending rate while keeping inflation in check, some segments of the housing market have stalled.

“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. New household formation and immigration keep fueling the need for housing, and a sudden release could create much market instability. This highlights the need for a more nuanced approach that balances inflation control with economic vitality,” adds Soper.

Statistics Canada’s latest report notes the country’s inflation rate rose to 2.9 per cent in May, up from 2.7 per cent in April. Without shelter costs, that lowers to 1.5 per cent.

Q4 2024 forecast

Royal LePage forecasts that the aggregate price of a home in Canada will increase by nine per cent in the fourth quarter of this year compared to last year’s same quarter. Home prices are expected to see continued moderate appreciation throughout the second half of 2024.

Review the full report, including regional summaries, here.