A three-year forecast from Canada’s housing agency is suggesting home prices across Hamilton are likely to rise with the possibility of mortgage rates dropping in late 2024.
The Canada Mortgage and Housing Corp. (CMHC) spring Housing Market Outlook expects “pent-up demand” will force buyers “off the sidelines” and create a market similar to what was seen in early 2021.
Compounding the problem will be low housing starts that will likely equate to a weak year for construction, according to CMHC’s Hamilton-area analyst.
Senior analyst Anthony Passarelli says condo projects are an example since sell-outs are needed before a developer can get financing and ultimately place a shovel in the ground.
“You won’t see that instantaneous reaction on the supply side … but probably on the resale market,” Passarelli explained.
“Home construction generally lags in the market a bit, so those higher rates that have happened the last couple of years aren’t reflected in the new home market ’til about a year or two later.”
The forecast says rental vacancy rates will increase somewhat in the next three years driven by more renters transitioning into homeownership.
However, the CHMC is quick to temper expectations, saying it will be a “modest bump” due to low homeownership affordability.
As a result, rents are not likely to soften as strong price growth is expected to continue with demand.
“We expect that situation to continue, maybe a bit higher for vacancies, but still low with a lot of pressure on rents,” said Passarelli.
The Realtors Association of Hamilton-Burlington (RAHB) reported a relatively stagnant market across the region last month with year-to-date sales comparable to those in 2023.
There were just over 1,000 sales in April, seven per cent fewer than in 2023 and well below long-term trends.
“Higher lending rates continue to weigh on potential purchasers, with some delaying any decision until later this year,” RAHB president Nicolas von Bredow said.
“At the same time, we continue to see new listings rise, providing more choice in the market and preventing any significant shifts in home prices.”
Prices were just over one percent lower in the region last month compared to April 2023.
The average detached home price in Hamilton hit $913,056 while an apartment-style residence was $463,992 last month.
Detached homes in Flamborough, Dundas, Ancaster and Waterdown produced average prices of over $1 million while Hamilton Centre had prices in the $570,000 range.
Bank of Montreal senior economist Sal Guatieri says the high house prices, especially across Ontario in British Columbia, is challenging some home buyers since prices relative to incomes aren’t compatible with a typical household’s affordability.
“Prospective buyers, whether they’re first time or trying to move up to a more expensive home, are playing the waiting game,” Guatieri suggests.
“They’re waiting for interest rates to come down to provide some relief, but they’re also probably waiting for house prices to continue to stagnate to allow incomes to catch up.”
The economist says there had been fears early in 2024 that potential interest rate drops would flood the market with buyers, thus driving home prices up.
But, Guatieri says a soft economy with high unemployment and the federal government’s commitment to cut back the number of non-permanent residents coming to Canada over the next three years should take pressure off the housing market.
“If they follow through with that pledge, we will see the population growth in Canada slow from a more than six decade high of about three per cent in the past year to closer to one per cent,” Guatieri said.
“That’s much more manageable rate of population growth for home builders to accommodate.”