This content was originally published by Zoocasa.

Homebuyers have been feeling a lot of uncertainty about whether the Bank of Canada will further hike interest rates this week, but recently released data from Statistics Canada shows inflation cooled in September and may mean relief for borrowers.

Inflation fell from 4% in August to 3.8% in September, suggesting the impacts of previous rate hikes are now being realized. At 5%, the current overnight lending rate is already at the highest it’s been in years, and with that, the 5-year fixed mortgage rate is also at a 15-year high of 5.49%. The impact on the real estate market as a whole has been clear as national sales tapered off for the third month in a row in September and new listings rose by 12.6% month-over-month according to the Canadian Real Estate Association.

After months of high borrowing cost conditions, what is the sentiment among homeowners and homebuyers? In a recent survey of more than 1,600 Zoocasa readers, the overwhelming majority of respondents said that if mortgage rates continue to increase, it would negatively affect their interest in real estate.

The last time we conducted this survey was in the spring when the overnight lending rate was 4.75%, and at that time 71.3% responded that further rate increases would negatively affect their interest in real estate. In this most recent survey, that number has jumped up to 79.1% of respondents, suggesting both affordability and real estate market sentiment have deteriorated over the past few months. Of respondents who said they were first-time homebuyers, the effect of uncertain economic conditions is even more apparent with 86.3% of first-time homebuyers saying further increases to mortgage rates would negatively affect their interest in real estate.

Housing Market Concerns Spur Need for Increased Government Involvement Says Homebuyers

Most recently, the Bank of Canada decided to hold the overnight lending rate in September following three previous rate hikes this year. However, the reaction from buyers was largely lukewarm. The majority of respondents were neutral when asked whether the Bank of Canada’s announcement to pause interest rate hikes has had a positive impact on their interest in the real estate market.

This was followed by 23.3% of respondents agreeing that the pause has had a positive impact on their interest in the real estate market while 16.1% strongly disagreed that the pause had a positive impact. This suggests it’s going to take more than just a pause from the Bank of Canada to get homebuyers off the sidelines.

It’s not just high interest rates that have impacted the outlook of homebuyers; housing supply is low across the nation which is keeping home prices propped up. Federal and provincial governments have made it their priority to solve the issue, but have they done enough?

At 38.9%, the majority of survey respondents said they strongly disagree with the statement that the government of Canada is doing enough to address the housing shortage. Just 5.4% of respondents strongly agreed, 15.6% disagreed, 14.3% agreed, and 25.9% were neutral. As the government aims to welcome 485,000 newcomers in 2024 and 500,000 in 2025, the demand for housing will grow and unless more effort is put into boosting supply, inventory struggles will continue.

Survey respondents shared similar sentiments about the government’s efforts to address housing affordability with the majority of respondents saying they strongly disagree that the government has done enough to address the issue.

Despite the national benchmark price trending downward for the past three months, home prices in every major market in Canada have increased dramatically over the past five years. This is especially true for the most sought-after markets like the Greater Toronto Area and Greater Vancouver, which experienced price increases of $386,200 and $209,800 respectively. This is likely one factor that resulted in the majority of respondents saying they do not feel now is a good time to buy.

At the same time, more than half of survey respondents said they are looking to buy a home in the near future. 5.4% said they plan to make their home purchase in 1-3 months and 7.1% said they plan to make their purchase in 4-6 months, showing motivated buyers are still out there.