If you’re thinking about buying a property right now, you’re probably keeping a close eye on interest rate fluctuations. The increase to the key lending rate announced this week by the Bank of Canada likely has you wondering about the potential impact it could have on your purchase plans. And what about the state of the real estate market and prices? Is the correction over?
Here’s an overview of the current market from the Q2 2023 Royal LePage Home Price Update to help you answer some of those questions.
During the second quarter of 2023, the aggregate1 price of a home in the Greater Montreal Area decreased 2.4% year-over year to $571,800, representing a 3.7% increase on a quarterly basis. The Bank of Canada’s decision to hike its key interest rate to 5.0% is likely to push buyers to the sidelines until borrowing costs come down, creating future pent-up demand.
Outside of the Greater Montreal Area’s market, three of the four surveyed regions posted increases – both year-over-year and on a quarterly basis – in the aggregate price of a home, except Gatineau, where property prices in the second quarter decreased 2.1% year-over-year. The Sherbrooke region recorded the strongest increase in the aggregate price, which grew 8.4% compared to the second quarter of 2022, followed by Quebec City and Trois-Rivières, with increases of 3.0% and 1.3%, respectively. Any traces of the price correction, which lasted for only two quarters in the regions surveyed, have now vanished and given way to healthy quarterly increases.
Dominic St-Pierre, vice-president and general manager of Royal LePage in the Quebec Region, said that this week’s announcement by the Bank of Canada to increase its key lending rate by 25 basis points – the second consecutive rate hike since the central bank hit pause in March – is a warning to some buyers who were hoping to return to the market – they will have to remain patient.
“The central bank raising its key rate tells us once more that it is committed to achieving the domestic inflation target of less than three per cent,” he noted. “With the housing shortage continuing, this announcement is likely to dampen the enthusiasm of many potential buyers, as we are seeing another dramatic surge in property prices following a short-lived period of correction. On the other hand, some buyers who have secured rate holds will rush to make a purchase before their rates expire. However, they will face increased competition for the little inventory available, as many would-be sellers who do not have an immediate need to move are holding off on listing their properties.”
Against the backdrop of sustained and faster-than-expected price increases, Royal LePage is now forecasting that the aggregate price of a home in the Greater Montreal Area will increase 8.0% in the fourth quarter of 2023 compared to the same period in 2022, to $587,844. On a quarter-over-quarter basis, this means that the aggregate home price in the region will remain essentially flat over the next six months, with only modest quarterly increases.
“This adjustment to our forecast is reflective of the market imbalance between supply and demand,” St-Pierre explained. “The number of active listings is up, but that inventory is being rapidly absorbed, and there are fewer new listings. Right now, the market is stuck in a vicious circle not unlike what we saw during the pandemic, and this is exacerbating the shortage of products available on the market. On the one hand, potential sellers are hesitant to list their homes, especially if they are benefiting from attractive mortgage rates, so as to safeguard their assets and avoid higher monthly payments. Those who decide to sell and also need to buy will find themselves competing with a mass of first-time buyers who have been waiting a long time for their chance to own a home.”
St-Pierre expects competition to be especially fierce for entry-level properties as a result of the recent interest rate hikes.
1 Aggregate prices are calculated using a weighted average of the median values of all housing types collected. Data are provided by RPS Real Property Solutions and include both resale and new build.
