Maroc - STOREYS.COM - A La Une - 28/Jun 17:55

Housing Affordability Will Improve, But Won't Soon Reach Pre-Pandemic Levels: Desjardins

With the Bank of Canada finally making a rate cut last month – the first one in over four years – Canada’s realtors say that the country’s buyers are slowly (key word) coming off the sidelines. With further rate cuts projected for 2024, the big question remains: When’s a good time to buy? With home prices expected to rise as rates fall, will there be a sweet spot for prospective buyers to jump into the housing market? According to a new report from Desjardins, some prospective buyers may find opportunities in late 2024 and early 2025 as interest rates drop – with several caveats and additional considerations (more on those later). The new modelling is based on the Desjardins Affordability Index (DAI), which considers factors like mortgage qualification thresholds, disposable income, home prices, ownership, costs, and mortgage rates in its measure of affordability.Canada’s housing affordability will improve, according to the report, albeit slowly, and won’t return to pre-pandemic levels for at least the next two years. “That’s partially because multiple drivers of affordability will sometimes work at cross purposes,” writes Marc Desormeaux, Desjardins’ principal economist, in the report. “Lower interest rates will reduce the cost of carrying mortgage debt, but they’ll also put upward pressure on home values and by extension monthly mortgage payments.”This, of course, is in contrast to what we’ve seen on the market from coast to coast for the past two years, when prices stalled or fell, but sky-high interest rates negatively impacted affordability. With that said, Canadians shouldn’t get their hopes up that borrowing rates return to the rock-bottom levels seen at times during the past decade. “Moreover, income growth will be muted in the coming quarters as the Canadian economy slows,” reads the report. The end result of gradually improving housing affordability, however, holds true under all four of the alternative forecast scenarios explored in the report. Those being: an extension of mortgage repayment timelines, changes to temporary migration policy, a pronounced spike in new listings, and a recession. storeys.com Naturally, and unsurprisingly, Desormeaux highlights that regional differences will persist. In the notoriously expensive housing markets of Ontario and BC, costly starting points mean that they’ll likely remain the most expensive markets. Meanwhile, Alberta should remain more affordable. “Since the pandemic, affordability has deteriorated less in Ontario and BC than elsewhere in Canada, but that’s largely because they were already unaffordable and had less room to run,” writes Desormeaux. “We think those jurisdictions’ particularly costly starting points mean they’ll remain the most prohibitively expensive. By contrast, the cost of homeownership should remain relatively low in Quebec and Alberta despite the more pronounced erosion of affordability there since late 2019.”Back to those caveats when it comes to timing the market (or, at least, trying to time it). Desormeaux offers the reminder that the decision to purchase a home is specific to an individual and should reflect their own financial situation. “Our projections also don’t explicitly incorporate sentiment effects that could occur if, say, rates drift lower in anticipation of future central bank rate cuts and drive outsized buyer exuberance,” writes Desormeaux. “Moreover, the DAI uses the average sale price across all dwelling categories at the national and provincial levels.”Desormeaux says that opportunities may differ for apartments and detached homes, or between cities or neighbourhoods, but that some prospective buyers will indeed find opportunities by the end of the year and in the early months of next year. By that point, Desormeaux anticipates that the national DAI will have climbed by about five percentage points from its current levels, which is about two‑thirds of the affordability improvement expected by the end of 2025. “And, optimistically for those seeking to build housing wealth, our projections also include steady price gains beyond that point as rate cuts completed earlier increasingly work their way through the Canadian economy,” writes Desormeaux. He concludes by saying that increasingly the country's housing supply is "the only sustainable long-term solution."In the meantime, all eyes of prospective homebuyers will be on the next Bank of Canada rate announcement on July 24.