The North American housing market is poised for notable changes as 2024 closes and the new year dawns. With declining interest rates offering hope to buyers, the impact on affordability remains uncertain, particularly concerning the state of the condo market. Steve Garganis, lead mortgage planner at Mortgage Architects, provides insights on what buyers and sellers can expect moving forward, alongside projections from the National Association of Realtors (NAR) on U.S. housing.
Garganis indicates the mortgage rate will significantly drive Canada’s housing market, stating, “It’s all about the rate – the mortgage rate, that's what will drive Canada's housing market and also be part of our overall economic health.” The Bank of Canada has seen fixed interest rates drop by approximately 1%, with expectations for additional cuts to occur by mid-2025. “We may even see fixed rates fall lower than CIBC is forecasting, with interest rates expected to reach the high 3% range,” he added.
Home sales across Canada showed tentative signs of recovery, with November 2024 seeing 44,590 sales, marking a 2.8% increase from the prior month. Garganis notes, “Despite these gains, we’re still below last year’s selling price average of $731,100.” He foresees a gradual cooldown potentially occurring later in 2025 as the buyer pool might stabilize after the pent-up demand finally sees resolution.
One pressing issue remains the condo market, which finds itself struggling due to reduced demand. Garganis pointed out, “Condo sales have fallen by 20% over the last few years.” He highlighted the trend of ”micro condos”—units averaging 300 square feet—as unsuitable for families. “The federal government could step up to stimulate this sector by extending amortization periods and removing restrictive stress test rates,” Garganis suggested.
The U.S. market aligns with Canada’s challenges, echoed by recent NAR reports showing pending home sales increasing 2.2%—marking the fourth month of positive gains—but still facing high mortgage rates. The Pending Home Sales Index (PHSI) now sits at 79.0, up 6.9% year-over-year, as consumers adapt to new market realities. “Consumers appeared to have recalibrated expectations,” stated Lawrence Yun, NAR's chief economist. “Mortgage rates have averaged above 6% for the past two years. Buyers are no longer waiting for or expecting mortgage rates to fall substantially.”
September saw inventory levels spike nearly 18%, offering buyers more choices, albeit larger homes remained elusive due to affordability concerns stemming from rising costs of borrowing.
Despite the improvements, the Northeast experienced declines, with its PHSI dipping 1.3%. Meanwhile, Southern and Midwestern markets showed resilience, bolstered by local job gains and new inventory supply. With the forecasting of gradual rate cuts, Yun warns buyers may continue feeling the pressure of affordability issues. “Significant affordability issues will restrain the flow of those entering the market,” he cautioned.
The predictions for 2025 indicate cautious optimism across the North American housing market. The Canadian Real Estate Association anticipates home sales to reach approximately 499,816, signifying over 6.6% year-over-year growth. Analyst Phil Soper from Royal LePage stated, “The backlog of willing and able buyers continues to grow,” projecting, “Key indicators point to stability returning next year.”
Analysts including those from RE/MAX and RBC share the sentiment, highlighting increasing sales momentum but cautioning about the reality of looming affordability issues. RBC forecasts indicate home sales growth of 12.5% year-over-year, calling for “gradually falling borrowing costs.”
All eyes now focus on the Bank of Canada’s future decisions concerning interest rates. Predictions suggest the overnight rate may continue to decline, resting between 2.00%-3.00% amid fluctuated economic conditions. Meanwhile, U.S. mortgage rates may see stability with the 30-year fixed-rate climbing slightly but remaining largely above 6%.
Given the shifting dynamics of both markets, experts suggest potential homebuyers embrace the seven-year view for any property acquisition, emphasizing the long-term vision when considering the negative repercussions of attempting to capitalize on quick-turnarounds.
The market’s road to recovery is undeniably complex and multi-faceted. Yet, as economists and experts discuss various measures to invigorate segments like the condo market, the prevailing consensus suggests readiness to adapt and innovate could offer the necessary lifeline as 2025 approaches.