Both homebuilders and buyers say Canadians are not confident about buying a house or condo, signaling that recent interest rate cuts have yet to meaningfully reduce high costs.
A survey from Royal LePage, one of the country's largest residential brokerages, signals that younger Canadians, specifically, are delaying home purchases. A separate report from the Canadian Home Builders' Association demonstrates a lack of confidence on the seller's side, in part due to tight mortgage restrictions.
The reports indicate that two interest cuts from the Bank of Canada are not doing enough to improve affordability, as builders call for new strategies to increase access to financing.
Kevin Lee, chief executive of the Ottawa-based builders group, noted the "slowly dropping interest rate environment is not enough to counter the restrictive mortgage rules, contributing to buyers' inability to enter the market with today's house prices."
The country needs such regulatory changes coupled with new homes to help increase affordability and drive confidence, Lee said in a statement.
"If buyers can't get better access to mortgages, and municipalities don't lower development taxes and address the barriers to homebuilding, the chronic undersupply of homes will only get worse in many areas of the country, which will drive up house prices again," Lee said.
Bank Decision Looms
The Canadian Home Builders Association's housing market index, based on a panel of hundreds of homebuilders and developers from coast to coast, found its index score for single-family homes in the second quarter was 29.9 out of 100, five points lower than the previous quarter and 10 points lower than the second quarter of 2023. A perfect score of 100 indicates builders feel conditions for home sales are good, with a score of 0 signaling conditions are poor.
The second quarter data for multifamily was 32.5, 5.4 points lower than the previous quarter and 8.5 points lower than a year earlier.
Meanwhile, the youngest cohort of prospective Canadian homebuyers faces no shortage of barriers to entering the market today, according to Phil Soper, chief executive of Royal LePage. The brokerage has a network of approximately 20,000 real estate professionals across 670 locations nationwide.
"Though the cost of borrowing has begun to come down, chronic supply shortages have kept housing prices from dropping, even as demand softened under the weight of high interest rates," Soper said in a commentary.
Canada's central bank lowered its overnight lending rate last month by 25 basis points to 4.5%, immediately affecting variable-rate mortgages tied to the prime lending rate at financial institutions.
The change to the trend-setting rate came after the Bank of Canada lowered the overnight rate for the first time in four years in June after it hit a 22-year high of 5% in 2023.
The central bank is set to meet next month in hopes of another rate cut, a possibility after the inflation rate dipped to 2.5% in July. That's the slowest pace of inflation since March 2021.
Fewer Restrictions
The report from the Canadian Home Builders' Association applauded moves by the federal government this year that have allowed first-time buyers to amortize their mortgages over 30 years instead of the traditional 25 years, lowering their monthly payments and increasing the likelihood of qualifying for a mortgage.
However, Lee's group is seeking even more changes, including lower stress tests for qualifying and basing the tests at lower rates during high mortgage rate periods.
LePage data puts the average price of a home in Canada at $824,300 as of the second quarter of 2024, up 1.9% from a year earlier.
The survey found 75% of the youngest cohort who don't currently own a home plan to purchase one in their lifetime.
Hill & Knowlton conducted the online survey between July 22 and July 31 using the polling firm Leger's opinion panel. It used 2,280 respondents, with the youngest cohort aged 18 to 38.
Those respondents are putting off significant spending and life decisions to fund their plans to buy a home, the report indicates, such as travel or buying a car. Other cost cutting measures indicated in the report include living with family members or delaying starting a family.