According to a new report from RE/MAX Canada, move-up buyers – that is, Canadians who already own a home and find themselves in a position to upgrade in the market – have been driving gains in the spring 2023 housing market, as they tried to get ahead of further Bank of Canada of interest rate hikes. These are the findings from a national perspective, and the trends forming in nine of Canada’s biggest housing markets.
National Market Trends
What began as a trickle of movement into housing markets late in the first quarter turned into a swell, as move-up buyers drove strong demand for residential properties across the country throughout the second quarter of the year. Buyers took advantage of the Bank of Canada’s temporary pause in overnight rate hikes in the second quarter of the year, sparking a flurry of activity in the mid- to upper-price ranges in Canada’s biggest housing markets. Tight inventory levels placed upward pressure on values, prompting double-digit price increases in five of the nine markets analyzed, between January and June of 2023. These include Regina, Greater Toronto, Hamilton, Winnipeg and Montreal. Meanwhile, single-digit price upswings were noted in the four remaining markets – Greater Vancouver, Calgary, Ottawa and Halifax – as sellers held on to properties that fell short of peak price levels reported one year ago. Fear of further rate hikes continues to impact the market psyche, with many move-up buyers hoping to get into the market before rates climb again. RE/MAX brokers noted increased urgency in the market as buyers sought to obtain mortgage pre-approvals with guaranteed rate holds in place for a 120-day period, prior to both the BoC’s June and July announcements.
Equity gains also factored into Canadians’ decision to move up to larger homes or better neighbourhoods, despite the pandemic-induced rise and fall of real estate value. This was especially true in central and eastern Canada. With trade-up activity traditionally occurring within four to seven years of the initial home purchase, RE/MAX examined pricing in June 2018 compared to June 2023 and found that almost every market reported a significant upswing in value over the five-year period, ranging from just over three per cent in Regina to more than 80 per cent in Halifax. “While the threat of further interest rate hikes has given some pause to the market, particularly at entry-level price points, robust equity gains over the past five-year period provided the means and confidence to fuel solid buyer intentions in move-up markets across the country,” explains Alexander.
Necessity was the primary factor driving demand through the first half of 2023. Whether it was a growing family, the need for more space to accommodate new work-from-home arrangements and schedules, or a better school district, quality-of-life considerations were central to purchasing decisions. This proved true regardless of the move being made – whether downsizing or simplifying in more walkable neighbourhoods closer to the core, trading up or making lateral moves, urban or suburban.
With July’s 0.25 basis point rate hike, the BoC’s key rate now sits at five per cent, and home buying activity is expected to slow through the summer months in most major Canadian housing markets. However, once it’s clear that the BoC is nearing the end of quantitative tightening and rates start to unwind, demand for housing will likely ramp up yet again. With uncertainty around financing out of the equation, the focus should remain squarely on supply again. In the move-up market and across the board, that will translate to renewed upward pressure on pricing. “One simply cannot understate the serious repercussions the housing shortage will continue to have on Canadian real estate and affordability,” explains Alexander. “In the short term, while the BoC’s movements may clamp down on housing demand, especially at lower price points, we expect they will have unintended consequences, serving as a temporary dam causing pent-up demand to build and new home construction to contract. When the BoC decides to finally relax quantitative measures and the dam bursts, housing supply will fall even shorter amid record population growth.”
*Source: https://blog.remax.ca/move-up-buyers/
