It’s been over a month since the Bank of Canada announced it was lowering the overnight lending rate in June to 4.75% – the first interest rate drop in two years. However, the impact on the Canadian housing market has been muted as home sales in many major markets remain relatively flat. So what will it take for homebuyers to jump back into the market?
This content was originally published by Zoocasa. View original content and infographics here.
To get a pulse on homebuyer sentiment following the first Bank of Canada interest rate drop, we surveyed over 1,100 Zoocasa readers on their real estate plans, preferences, and concerns.
Rising Home Prices The Biggest Concern for Homebuyers
The overnight lending rate may have decreased in June, but average home prices have generally not gone down, further challenging affordability. According to the Canadian Real Estate Association, in many of the country’s largest real estate markets, the average home price increased year-over-year by more than 5% in June 2024, including in Greater Vancouver, Calgary, Edmonton, Montreal, and Quebec. Though some Ontario markets experienced a slight year-over-year decrease, such as in Greater Toronto (-1.7%) and Niagara Region (-1.1%), average home prices remain out of reach for many.
High home prices are one of the most significant hurdles for prospective homebuyers, with the majority of survey respondents (58%) citing the purchase price as the most important factor in determining the affordability of a home for them. Monthly mortgage payments were the most important factor for just 26.6% of respondents, followed by home maintenance costs (8%) and property taxes (6%).
When asked whether they agree that there are enough affordable housing options available in their desired location, 33.2% strongly disagreed, 16.2% disagreed, and 26.4% responded neutrally/unsure.
Despite this, many prospective homebuyers are not willing to move in order to find a more affordable home. 34.5% of respondents said they would be willing to move within the same city, 31.1% said they would be willing to move within the same province, and 17.5% said they were not willing to move. Just 9.5% said they would be willing to move to a different province to find a more affordable home. Baby boomers were the least willing to move, with 25.9% saying they were not willing to move to find a more affordable home, compared with 16% of Gen X respondents and 6.5% of Millennial respondents.
Interest Rates Shape, But Don’t Control All Homebuyer Decisions
For much of 2024, the prevailing belief has been that once interest rates decline, homebuyers will flood back into the market. But since the Bank of Canada announced the first interest rate drop at the beginning of June, national home sales have not substantially increased. So what are buyers waiting for?
While 31.6% of respondents said they are waiting for significant rate cuts before entering the market this year and 15.1% said they are waiting for one more interest rate cut, a large percentage are not impacted by interest rates. Additionally,15.5% said they aren’t waiting for interest rate cuts and 15.4% said interest rates do not influence their decision to enter the market. Among Millennial, Gen X, and Baby Boomer respondents, Baby Boomers are the least impacted by interest rates. Specifically, 21.8% of Baby Boomers stated that interest rates do not influence their decision, compared to 12.2% of Gen X respondents and only 8% of Millennial respondents who felt the same way.
When asked about the importance of current mortgage rates in their decision to buy a home, 31% responded that they were very important, 26.2% considered them important and 20.1% responded neutrally. Meanwhile, a notable portion of homebuyers placed little to no importance on mortgage rates, with 15.1% saying that mortgage rates were very unimportant in their decision to buy a home, and 7.6% saying they were unimportant.
There’s no doubt that high mortgage rates have impacted the Canadian housing market in recent years, but other factors have also played a role in influencing homebuying decisions. 42.3% of respondents said rising home prices were their primary concern regarding home buying in the current market. Interest rates were the next biggest concern (25.6%), followed by economic uncertainty (14.9%), inventory shortage (7.2%), and competition from other buyers (6.3%).
Though rising home prices were the largest concern for homebuyers across generations, Millennial respondents were the most impacted, with 48.9% citing rising home prices as their primary concern, compared to 40.5% of Baby Boomer respondents and 36.5% of Gen X respondents.
“Rising home prices have especially impacted Millennials and older Gen-Z, who are looking to buy their first homes but are finding themselves priced out of many markets,” says Carrie Lysenko, Zoocasa CEO. “Although borrowing costs have eased slightly with the first Bank of Canada rate drop in four years this June, this hasn’t been sufficient to counterbalance the affordability challenges. As a result, many potential buyers are forced to reconsider their timing or location for purchasing a home.”
Baby Boomers may feel less impacted by rising home prices than Millennials because the majority plan to finance their home purchase by selling an existing home. In contrast, most Millennials intend to finance their purchase with a mortgage loan (28.8%) and personal savings (21.4%). Gen X homebuyers fall between the two groups, with most funding their purchase through a mortgage loan (26.5%), followed by selling an existing property (14.1%).
The majority of respondents, 40.4%, answered neutrally when asked if the recent Bank of Canada announcement to lower interest rates has had a positive impact on their interest in the real estate market. Just 12.6% strongly agreed that the announcement had a positive effect, while an equal amount of respondents, 12.6%, strongly disagreed. This further suggests that prospective homebuyers may need more than just lower interest rates to encourage them to enter the housing market.
Canadian Homebuyers Think Positively Of Real Estate Agents
Among the 84.3% of survey respondents who worked with a real estate agent in the past, the majority reported being either satisfied or very satisfied with their experience. Most respondents found their agents through referrals (44%) and online searches (16.7%), with fewer finding their agents through advertisements (8.6%) and social media (4%).
Although 38.4% of respondents initially had concerns about working with an agent—primarily regarding fees/commissions (34.8%) and trustworthiness (34%)—the majority (61.6%) did not have such concerns. Impressively, 40.5% of respondents felt their agent addressed their concerns very well, and 38.1% felt they were somewhat well addressed. On top of that, 59.1% of respondents said that their agent was very transparent about fees and commissions, which likely contributed to the 71.5% of respondents who said they would consider working with an agent again in the future.
Uncertainty Is in the Air
Despite 55.6% of respondents planning to buy a home in the near future, there’s still a feeling of uncertainty among prospective homebuyers this summer. 41.3% of survey respondents said they were unsure if now is a good time to buy, compared with only 11.9% who strongly believe it’s a good time to buy and 12.1% who strongly disagree. This may contribute to why the majority of respondents (53.7%) said they plan to wait a year or longer to make their home purchase.
Similarly, when asked if they felt homeownership is a good investment in the current market, 31.4% answered unsure. However, not all homebuyers shared this uncertainty; 29.2% agreed and 25.2% strongly agreed, indicating a more optimistic outlook.
Given that some homebuyers feel uncertain about the current market, real estate agents may need to provide more assurance and information to ease any hesitancy. It may now be more necessary than ever for agents to work closely with clients to ensure they feel knowledgeable and comfortable about local market conditions. However, this may also depend on the client’s age and risk tolerance.
The majority of Baby Boomer respondents said they were very confident (41.9%), confident (29.4%), or moderately confident (21.8%) in their ability to navigate the homebuying process. Millennial respondents had lower levels of confidence, with 27.2% saying they were very confident and 33.1% saying they were confident. In addition, 29.5% of Gen X respondents said they were very confident, while 30% said they were confident.
Methodology
The survey was conducted between June 24, 2024 and July 10, 2024. 1,145 Zoocasa blog readers and newsletter subscribers across Canada were surveyed, and the survey consisted of 42 multiple-choice questions to learn about the current real estate outlook of Canadians. The margin of error is roughly 2%. Generational age ranges were determined based on Statistics Canada’s definitions which are as follows: Gen Z: born between 1997 and 2012, Millennials: born between 1981 and 1996, Gen X: born between 1966 and 1980, Baby Boomers: born between 1946 and 1965.