As 2024 begins, the Canadian real estate market appears set to grapple with persistent challenges from the previous year, including concerns about interest rates, inflation, and the ongoing housing crisis. However, experts anticipate a degree of relief in the near future, with potential interest rate cuts, mortgage relief, and an eventful spring housing market on the horizon.

Interest Rate Outlook

The Bank of Canada (BoC) made headlines in 2023 by raising the policy rate to a 22-year high of 5% in July. Despite this, experts predict a potential relief in interest rates in 2024. BoC Governor Tiff Macklem acknowledged progress in reducing inflationary pressures, with inflation dropping from over 8% to 3.1% in October. While Macklem cautioned against immediate rate cuts, many economists anticipate a rate cut in the coming months.

Home Price Trends

Canadian home prices experienced a drop in the latter part of 2023 due to seasonality and higher interest rates. Forecasts suggest a continued downward pressure on prices in early 2024, with TD warning of a potential 10% decline. However, experts believe this correction won’t last long, and Royal LePage forecasts a 5.5% year-over-year increase by the fourth quarter of 2024.

Spring Market Expectations

The slowdown in home-buying activity towards the end of 2023 may lead to a more active spring market in 2024. The timing of interest rate cuts could influence market dynamics, encouraging sellers who have been on the sidelines to participate. Lower mortgage rates, resulting from the Bank of Canada’s easing cycle, are expected to contribute to increased activity.

Housing Starts Projections

Housing starts faced a 22% decline in November 2023, attributed to tighter economic conditions impacting construction timelines. Projections for 2024 suggest only a slight increase in housing starts compared to 2023, with challenges like labor shortages and softer pre-construction sales continuing to affect supply.

Investor Considerations

Real estate investors are expected to reassess their buying plans in 2024. The hurdle for investors may be higher due to subdued expectations of price gains and historically tight spreads between cap rates and risk-free yields. Opportunities in the multifamily and industrial asset classes are highlighted, with the retail sector, especially grocery-anchored developments, showing improved sentiment.

While challenges persist, the real estate market is poised for potential shifts, offering both challenges and opportunities for buyers, sellers, and investors in the year ahead.