Fall housing market could be ripe for 1st-time buyers. Here’s why

Some previously unaffordable pockets of Canada’s housing market may become more accessible to first-time homebuyers this fall as interest rates decrease, although experts anticipate that prices will remain relatively stable.

Despite consecutive rate cuts from the Bank of Canada, the Canadian housing market has experienced subdued activity throughout the spring and summer. The latest 25-basis-point rate cut, the third in a row, was announced on Wednesday.

Pritesh Parekh, a realtor based in Toronto, mentioned to Global News that while summer traditionally sees a slowdown in home sales, the rate cuts in June and July were insufficient to alter the situation for prospective buyers struggling to enter the housing market.

The reduction in the central bank’s policy rate lowers the barrier for potential homebuyers, many of whom have been sidelined due to challenges in qualifying for a mortgage.

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“With the third consecutive rate cut this year, there will likely be more discussions among first-time buyers,” Parekh stated.

TD Bank economist Rishi Sondhi anticipates a significant increase in sales activity in the fourth quarter of 2024, partly due to lower interest rates.

Although activity is expected to lag behind pre-pandemic levels, Sondhi believes that borrowing costs and home prices remain high.

TD Bank, along with other major lenders, foresees the Bank of Canada reducing its policy rate to around 2.5 per cent by 2025.

Parekh notes that as confidence in declining interest rates grows, buyers may delay their purchases in hopes of securing the best rates or larger mortgages.

This could restrict the number of buyers entering the market in the fall, despite some reaching a point where borrowing costs align with their homebuying plans.

“There will be buyers waiting to take advantage of further rate cuts, and others who are on the brink of making a decision,” Parekh explained.

An increase in active buyers could lead to heightened competition for properties in the market.

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Bank of Canada governor Tiff Macklem acknowledged the possibility of rising home prices as the policy rate decreases and conditions soften in the bond market, resulting in reduced mortgage rates.

“It wouldn’t be surprising to see some increase in housing prices as interest rates drop and housing market activity strengthens,” Macklem stated during a press conference on Wednesday.

Re/Max Canada’s fall housing market outlook projects a modest increase in home prices in most Canadian cities by the end of the year.

The report anticipates price growth ranging from one to six per cent in approximately three-quarters of the markets across Canada compared to the first quarter of 2024.

However, certain markets, particularly some of Ontario’s pricier areas, are expected to see price decreases for the remainder of the year.

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Re/Max predicts a two per cent decrease in the average home price in the Toronto area by the end of the year. The market has already experienced price declines this summer, with the latest August housing data indicating a 0.8 per cent annual decrease in prices and a slowdown in year-over-year sales.

Christopher Alexander, president of Re/Max Canada, believes that the recent rate cuts are encouraging more buyers to enter the market, where supply often surpasses demand.

“Many potential buyers have postponed their plans for nearly two years, and now they see an opportunity with a considerable amount of inventory and choices still available,” he noted.

“Buyers have negotiating power, especially in the Toronto condo market. I believe we are moving towards a healthier market state,” Alexander added.

While lower interest rates are likely to drive up prices in the long term, the short-term price movement remains uncertain, according to Parekh. The upcoming months will be influenced by lower interest rates and an expected increase in buyers, contingent on whether the trend of rising listings continues and supply growth offsets demand.

Sondhi predicts that housing affordability will improve in the fall but remain strained in most markets. Despite several rate cuts, interest rates are still high, and home prices have not significantly decreased despite the sales slowdown.

“We expect affordability to improve as rates decline, not just in the fall but moving forward. However, we anticipate it will still remain at historically low levels,” Sondhi stated.

Experts interviewed by Global News suggest that the surplus of condos currently available for sale in Toronto could undergo a price correction, presenting an opportunity for first-time buyers this autumn.

Sondhi mentioned in a report released on Thursday that average prices in the “oversupplied” Toronto condo market have dropped by five per cent since the third quarter of 2023.

He foresees further price declines in the mid-to-high single digits until early 2025 as new condo completions enter the market and decreasing rents prompt investors to list their properties. Additionally, a weakening labor market could impede buyers if households begin to experience broader income impacts.

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“When there is an excess of supply compared to demand, prices tend to decrease,” Sondhi explained.

Sondhi also mentioned potential risks to this outlook. Investors might withdraw their condos from the market if they cannot achieve their desired price, and buyers could react more swiftly to lower interest rates by rushing to purchase listings.

Condos are often the entry point for new buyers as they are typically at the lower end of the market’s price spectrum.

Alexander highlighted a “significant opportunity” for first-time buyers interested in condos in Vancouver and Toronto, where borrowing costs and prices might simultaneously decrease.

However, he emphasized that these two cities are not the sole options for entering the housing market in Canada, and conditions are expected to stabilize across various cities in the country this fall.