Homebuyers are not rushing back to the market as expected after June’s interest rate drop.
That is according to the latest home price survey released by Royal LePage on Thursday.
Home prices rose 1.9 per cent year-over-year in the second quarter while overall sales dropped — a dynamic the president and CEO of Royal LePage described as unusual.
“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,” Phil Soper said in a news release.
A Royal LePage survey from earlier in 2024 found 51 per cent of sidelined homebuyers would resume their search if interest rates reversed.
Ten per cent said a 25-basis-point drop would prompt them to jump back into the market, 18 per cent said they are waiting for a cut of 50 to 100 basis points, and 23 per cent said they need to see a cut of more than 100 basis points.
On June 5, the Bank of Canada lowered its overnight interest rate by 25 basis points to 4.75 per cent — the first drop since March 2020.
Soper said further interest rate cuts are needed to increase purchasing power and improve consumer confidence.
“A change in monetary policy drives consumer behaviour in two important ways. Lower rates mean lower monthly payments, opening the door to some families previously shut out of the market,” he added.
“Secondly is the psychological signal broadcast to sidelined buyers that the tide is turning, and that market activity is about to pick up again. Not surprisingly, the quarter-point cut to the bank rate didn’t substantially improve the affordability picture.
“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.”
The national aggregate home price remains well above pre-pandemic levels. In fact, it has increased by 30.8 per cent compared to the same period in 2019.
While this seems like a substantial jump, Soper said it is important to look at that increase over the longer term.
“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,” he said.
Meanwhile, Royal LePage maintains its national year-end forecast with prices expected to increase nine per cent over last year.
