Summary of Webinar:
GRI hosted an interactive session featuring Robert Kavcic. The focus was on the outlook of the housing market in Canada.
Kavcic began his presentation by examining the overall economic conditions that affect the real estate market. He explored several key economic factors such as GDP, inflation and interest rates before offering the general outlook for the economy, emphasizing its overall resilience. He pointed out that the full impact of recent rate hikes is yet to be felt, expecting significant developments in the next three to six months.
He suggested that 2024 marks a transitional period for the real estate market, which is adjusting given the significant corrections it has undergone. Kavcic anticipates a modest increase in real estate sales volume as we enter the spring and summer of 2024.
Exploring further, Kavcic discussed the dynamics of supply and demand within the housing market. With the construction industry operating at full capacity, he stressed that lack of housing supply does not fully explain ongoing affordability issues. Instead, Kavcic attributed the current strain on housing affordability to excess demand, driven by two factors: the low interest rates during the pandemic that fueled an asset price boom; and demographic factors, including high immigration targets, growth in non-permanent resident numbers, and the aging millennial population.
Looking ahead, Kavcic said that the Bank of Canada (BoC) is approaching a phase where they may consider reducing interest rates. He anticipated a 100 basis point rate cut from the BoC by the end of 2024, with an additional 100 basis point decrease in 2025. He saw rates ultimately progressing towards a neutral level of around 2.75% by 2026. With the neutral interest rate level expected to be much higher than before and a sluggish economy, Kavcic suggested it is unlikely that the Canadian housing market will revert to the pre-pandemic state of double-digit price growth anytime soon.
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Senior Economist and Director, BMO Capital Markets