Over the past year, increasing interest rates have caused many Canadian homebuyers to pause their purchase plans. According to a recent survey conducted by Maru/Blue for Royal LePage, almost a quarter (24%) of Canadians were planning to buy a new home in the past year, and 63% of them postponed their plans due to rising rates. However, with the Bank of Canada recently announcing a hold on the overnight lending rate for the first time since March 2022, many homebuyers are now planning to resume their purchasing plans.

Of those who postponed their plans, 62% now intend to return to the market. The survey found that over a quarter (26%) of Canadians who put their home purchase plans on hold due to rising interest rates will resume their search this spring, following the Bank of Canada’s announcement to hold the overnight lending rate at 4.5%. Additionally, over a third (36%) plan to move forward with their buying intentions, but will wait for the central bank to maintain the current rate for several consecutive months. On the other hand, 25% of those who postponed their home buying goals stated that they do not intend to resume their plans in the near future.

President and CEO of Royal LePage, Phil Soper, noted that the Bank of Canada’s decision to hold interest rates was a significant one, after 8 consecutive meetings of aggressive rate increases to control inflation. Soper believes that the recent announcement was the signal that many Canadians were waiting for, indicating that it was now safe to wade back into the housing market to search for their desired family home.

Out of the Canadians who delayed their home buying plans due to increased borrowing costs, 65% report that higher interest rates have significantly reduced the value of the homes they can afford. Another 28% of respondents say rates have somewhat reduced their affordability. Additionally, two-thirds (67%) of those who postponed their purchase plans are between the ages of 18 and 34.

For those Canadians planning to re-enter the housing market, many are opting for fixed rate mortgages that can shield them from fluctuating interest rates. More than half (53%) would choose a four- or five-year fixed rate mortgage, while 17% would choose a short-term fixed-rate mortgage (1-3 years). About 16% of respondents would opt for a variable rate mortgage.

Soper also mentioned that well-priced properties in popular neighbourhoods with low inventory have already seen multiple offers in recent weeks. He anticipates that signs of stable economic conditions will lead to a more normalized spring market. Despite more significant economic challenges in the US, Canada’s economy has remained stable during this correction period. Industry regulators are taking a cautiously optimistic approach and note that Canadian financial institutions are more resilient to increased interest rates due to strict federal regulations, as evidenced during the 2008 financial crisis when the Canadian housing market and banking sector outperformed the US.

Rising interest rates caused many Canadian homebuyers to delay their purchase plans, but with the recent hold on interest rates by the Bank of Canada, many are now planning to resume their search for a new home. According to a recent survey by Maru/Blue for Royal LePage, 62% of those who postponed their plans due to increasing interest rates intend to return to the market. Additionally, many Canadians planning to re-enter the housing market are opting for fixed rate mortgages to shield them from fluctuating interest rates. Despite challenges in the US economy, Canada’s economy has remained stable, and signs of stable economic conditions are expected to lead to a more normalized spring market.

Reference:

Royal LePage. (2019, March 28). Buyers Spring Back: Sidelined Canadians Plan Return to Market.