The outlook for Canada’s economy and housing market is challenging, with more difficulties likely before any improvement.
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The recent Bank of Canada rate cut has sparked optimism in the real estate industry, with many predicting a surge in demand and prices. However, I am skeptical. Current economic conditions don’t support a strong housing market rebound. Recent data shows that the number of households in Ontario severely delinquent on their mortgages has exceeded a billion dollars, doubling pre-pandemic levels.
Housing analyst Ben Rabidoux recently highlighted that mortgage delinquencies typically rise after the first rate cut, as it takes 18 to 24 months for the full impact of higher rates to be felt. Although the percentage of delinquent mortgages is still low, the increasing trend is worrying. Mortgages are often the last debt people default on, indicating significant economic stress when delinquencies rise.
The condo market is under particular pressure, with many investors listing their properties to reduce debt. While in most cases these properties are not underwater, the challenge lies in servicing the debt at high-interest rates. This has led to a record number of condo listings, though prices have not yet dropped significantly.
Higher debt servicing costs are also likely to reduce household spending, affecting various sectors of the economy. This reduced spending power will have both direct and indirect effects on the housing market.
Predicting the housing market’s future is difficult. While a crisis similar to the US financial crisis seems unlikely, the rise in delinquencies is an important trend to keep an eye on. Different market segments will feel the impact differently, with condos potentially facing more pressure than low-rise housing markets because of the higher share of investors.
In short, caution is essential in the current market. The optimism from recent rate cuts may be premature, with the housing market likely to remain sluggish for the next six to nine months. Monitoring these developments will be crucial for making informed real estate decisions as we approach the year ahead
Have questions about your own moves in the Toronto area as a buyer, seller, investor or renter? Book a no-obligation consult with John and his team at a Realosophy here: https://www.movesmartly.com/meetjohn
John Pasalis is President of Realosophy Realty. A specialist in real estate data analysis, John’s research focuses on unlocking micro trends in the Greater Toronto Area real estate market. His research has been utilized by the Bank of Canada, the Canadian Mortgage and Housing Corporation (CMHC) and the International Monetary Fund (IMF).
