As we plunge into 2024, we see the new home real estate market regaining some of its lost footage from the past few years, when life threw so many curves at us.
In December, the Bank of Canada held its target for the overnight rate for the second time in a row, and inflation is down. The atmosphere in the industry is charged with positivity.
In fact, we noticed it weeks ago in our new condominium presentation centres. People have been coming in with increased hope in their approach.
Some of this optimism is thanks to Benjamin Tal, CIBC Capital Markets' managing director and deputy chief economist. In his annual opening address at the Real Estate Forum in Toronto at the end of November, he predicted the Bank of Canada’s overnight rate will eventually settle at around 2.75 to three per cent, and 10-year mortgage rates will be around 3.5 per cent.
After hints by me and other industry professionals in the media for months, it is heartening to hear it from someone of Tal’s stature. His words are imprinted on our memories now, and as is so often the case, we make the economy rather than vice versa.
Resale home prices expected to rise
And isn’t it grand that we have five- and 10-year mortgage terms here in Canada?
Interestingly, the US is offering 25 and 30 years. Hmmm!!! Yes, some Canadians will still opt for a variable rate, but that is a different type of purchaser.
This news is a real confidence booster.
In addition, Toronto’s resale home prices are predicted to rise six per cent by the end of the year, and new homes and condominiums should follow suit.
Why? It is because of pent-up demand from those who have been waiting for interest rates to settle. Among these are investors, first-time buyers and right-sizing individuals and couples.
Interestingly, many savvy investors in new construction condominiums bought with incredible incentives in 2023. They took advantage of that and now that rates are starting to come down, they know prices will go up. There is great security in dependable rates.
Immigration is not expected to slow
Then consider our massive immigration numbers, which are here to stay for the foreseeable future and will fuel even more demand for housing. The high number of newcomers to our country have kept us from recession.
In addition, immigrants come with varying backgrounds and levels of education and skills. Our government is approving immigrants who have skills that bolster our economy, such as construction workers.
Then we have an unemployment rate at 6.1 per cent, which is lower than the long-term average of 7.38 per cent.
In the face of this good news, we still have a shortage of residential options for the number of potential purchasers out there.
We need more government-supplied incentivization for builders to construct a variety of housing types including rental towers and entry-level housing, so we can put roofs over the heads of newcomers and first-time buyers. To get back to affordability, Canada needs 5.8 million more homes by 2030.
We are seeing some innovative thinking on the part of our federal government, which is compiling a list of pre-approved home designs, similar to a post-war strategy when Canadians returning from war had problems finding housing.
It is hoped this catalogue will speed up housing development.
Big boost for housing supply in Toronto
In addition, on Dec. 21, it was announced by the federal government that $471 million in funding was being allocated to Toronto through CMHC’s Housing Accelerator Fund (HAF), which is part of the National Housing Strategy. HAF has the goal of achieving 100,000 new homes across Canada over the next three years.
This translates to an additional 11,780 homes for Toronto, on top of what has already been projected for that time period. This step will increase Toronto’s supply of new rental homes, protect existing rental homes and accelerate approvals of new homes by streamlining processes more and using new technology.
Government intervention in the housing market is not new. Past examples include innovative partnerships with the Governments of Canada and/or Ontario, which enabled many people who would otherwise not be able to purchase homes to become homeowners.
These ranged from the 1980s when the recession hit to the early 2000s, when affordable entry-level housing was becoming scarce.
Many things have changed since the pandemic ended.
Supply chain issues are far fewer than they were, and Canadians are starting to spend the money they saved during that time. We have indeed experienced a correction in the housing market, which is good in the long run.
We expect to see a new normal in the next couple of years, when demand will continue to exceed supply and people will once again be snapping up homes and condos.
Real estate is a cyclical business, and we are ready for an upward cycle. It is great to look forward to a brighter future.
Barbara Lawlor is CEO at Baker Real Estate Incorporated. Among her accolades are inclusion in SPARK’s Influential Women in Canadian Real Estate Development 2021. Keep current with The Baker Blog