Projections forecast a major rise: The cost of buying a home in Canada has become increasingly impossible for many in the country but things will soon get a lot worse according to a report from the country’s national housing agency.
Homes will get 20% more expensive: Existing housing prices are forecasted to rise 20% over the next three years based on the latest data from the Canada Mortgage and Housing Corporation (CMHC) because of cuts to interest rates.
The cost of an average home in 2024: The average sale price of a home in Canada at the end of 2024 is expected to reach as high as $711,429, which Better Dwelling reported was a 4.9% advancement from home prices in the previous year.
Prices will see explosive growth: Canadian home prices will see explosive growth in 2025. CMHC is forecasting a 9.5% jump in the cost of housing while 2026 will see a moderate rise of 4.6%. The baseline price will rise to $815,851.
The activity will be in smaller cities: Better Dwelling reported that the difference between the baseline prices of housing in 2024 will rise by 20% before the end of 2026. Most of the activity is forecasted to take place in smaller cities.
Demand will push prices up: “Demand for homes will push prices up throughout the projection horizon,” the CMHC report noted. “By 2025, prices could reach the peak level recorded in early 2022 and surpass it in the following year.”
Affordability will be an issue: “Affordability will therefore be a growing concern,” the report added before noting that the rise in costs would be fuelled by declining mortgage rates as well two other factors that the report explained.
What’s causing the bump? Expected interest rate cuts aren’t the only factors having an impact on the forecasted rising cost of housing in Canada. Pressure will be placed on demand by the country’s growing population.
Record population growth: “Strong population growth recorded in 2023, the highest since the 1950s, will continue into 2024. This will contribute to the recovery in sales,” the report’s authors explained, and it makes a lot of sense.
Canada’s immigration policy: Canada will take in roughly 1.5 million new immigrants from 2024 to 2026 according to the government’s plans, which means that the population will continue to rise at a time when housing is in trouble.
The country lacks 3.5 million units: In September 2023, a CMHC report noted that Canada would need at least 3.5 million more units than were already being built in order to meet the housing requirements of the country’s population in 2023.
Latest Bank of Canada update-Bank of Canada holds and maintains policy key interest rate at 5%, continues quantitative tightening.
Bank of Canada Latest Update:
As per Scotia bank, As expected, the Bank of Canada kept its policy rate unchanged at 5%. Inflation is slowing, but high prices continue to put pressure on households. Canadians can expect substantial interest rate relief later this year. Our economists predict the BoC will likely start lowering its policy rate in September, to a total of 75 basis points cut by the end of the year.
Stay tuned for the next interest rate decision on June 5, 2024.
Scotiabank’s analysis suggests that the Bank of Canada’s rate cuts might face delays due to high government spending.
30 Year Mortgages are coming back for first-time homebuyers for new build:
Speaking in Toronto on Thursday, Finance Minister Chrystia Freeland announced the federal government will allow 30-year amortization periods on insured mortgages for first-time homebuyers purchasing newly built homes.
The change will take effect Aug. 1.
As part of the announcement, Freeland also said the government will raise the amount first-time homebuyers can withdraw from their RRSPs -- to $60,000 from $35,000 -- to buy a home. That will take effect April 16, the day the federal budget is set to be released.
The government said the change reflects the reality that the size of a down payment and the amount of time needed to save up for one are much larger than they used to be.
People who have made or will make withdrawals between Jan. 1, 2022, and Dec. 31, 2025, are also getting more time to begin repayment -- up to five years in total rather than two.
Ottawa said those changes are meant to work in tandem with the First Home Savings Account, which it launched last year. The rules governing that program allow prospective homebuyers to start saving for up to 15 years once they open an account, with an annual $8,000 deposit cap and a lifetime contribution limit of $40,000.
Freeland said more than 750,000 Canadians have opened an FHSA to date. While the program came online April 1 of last year, most Canadian financial institutions only began offering the account as of last summer or fall.
Ottawa also announced changes to the Canadian Mortgage Charter that will include an expectation that financial institutions offer permanent amortization relief to protect existing homeowners who meet certain eligibility criteria.
That would allow eligible homeowners to reduce their monthly mortgage payment to a number they can afford for as long as needed.